Surprise service sector stutter sinks sterling
STERLING plummeted yesterday as survey figures showed a slowing in service sector growth, denting hopes of a rebound after the economy slowed at the start of the year.
The pound immediately lost one per cent against the dollar, dropping to $1.5260, but staged a recovery later in the day.
The survey, Markit’s services purchases managers’ index, eased back to a score of 56.5 in May from 59.5 in April. Scores above 50 point to growth with higher numbers representing faster growth.
The service sector makes up almost 80 per cent of the economy, which has raised doubts over whether the UK’s weaker economic growth in the first three months of the year will be temporary.
“A marked slowdown in services expansion in May reported by the purchasing managers puts a dent into hopes that GDP growth will pick up markedly in the second quarter,” said economist Howard Archer from analysts IHS.
The economy grew by just 0.3 per cent during the first three months of the year, down from 0.6 per cent in the final three months of 2014. Archer said his earlier forecast of 0.7 per cent growth from April to June was beginning to look optimistic.
“Service sector activity in May saw its largest fall since August 2011. However, with the activity index lying above the long-run average, the survey still pointed to services output growing at a robust rate,” said Martin Beck, senior economic adviser to the EY Item Club.
Beck is optimistic. He is forecasting a rebound in growth between April and June to 0.7 to 0.8 per cent.