Investing.com - The U.K. service sector rose more than expected in May, bouncing back from a three-year low in the prior month and increasing optimism over the health of the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Friday.
In a report, market research group Markit said the seasonally adjusted Markit/CIPS Services Purchasing Managers Index rose to 53.5 last month from a reading of 52.3 in April.
Analysts had expected the index to rise to 52.5 in April.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Despite the better than expected read, Markit warned that the improvement in expectations would hinge on the June 23 referendum on the U.K.’s membership in the European Union (EU).
The research group also highlighted that it was the slowest gain in new business in the 41-month growth sequence and that hiring was at a 33-month low.
"The PMI surveys show that the pace of economic growth remained subdued in May, as ‘Brexit’ worries exacerbated existing headwinds," Markit chief economist Chris Williamson said.
"The data so far indicate that the second quarter is likely to see the economy grow by just 0.2%," he forecast.
The pound was little changed after the data. GBP/USD was trading at 1.4429 from around 1.4432 ahead of the release of the data, while EUR/GBP was at 0.7730 from 0.7727 earlier.
Meanwhile, European stock markets traded higher, with London’s FTSE 100 gaining 0.93%. The EURO STOXX 50 rose 0.18%, France's CAC 40 traded up 0.28%, while Germany's DAX advanced 0.40%.