Investing.com - The U.K. service sector dropped more than expected in April, showing its weakest growth in over three years and dampening optimism over the health of the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Thursday.
In a report, market research group Markit said the seasonally adjusted Markit/CIPS Services Purchasing Managers Index dropped to 52.3 last month from a reading of 53.7 in March.
Analysts had expected the index to slip to 53.5 in April.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
The rate of expansion slowed for the third time in the past five months to its weakest level since February 2013.
The report also revealed the slowest rise in employment since August 2013 and that input price inflation hit a 27-month high.
Markit chief economist Chris Williamson pointed out that the service sector data, coupled with similar weakness in manufacturing and construction made “a triple-whammy of disappointing news on the health of the economy at the start of the second quarter.”
“The PMI surveys are collectively indicating a near stalling of economic growth, down from 0.4% in the first quarter to just 0.1% in April,” Williamson warned.
Although, Wiliamson noted that some of the slowdown could be attributable to the timing of Easter, he noted that April also asserted that there was an increase in the number of companies reporting that uncertainty about the U.K.’s June 23 referendum on its membership in the European Union (EU) caused customers to hold back on purchases, “exacerbating already-weak demand linked to global growth jitters and ongoing government spending cuts.”
“The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth, either by cutting interest rates or through non-standard measures such as QE,” Williamson concluded.
GBP/USD was trading at 1.4467 from around 1.4480 ahead of the release of the data, while EUR/GBP was at 0.7909 from 0.7902 earlier.
Meanwhile, European stock markets traded higher, with London’s FTSE 100 gaining 0.64%. The EURO STOXX 50 rose 0.76%, France's CAC 40 trade up 0.36%, while Germany's DAX advanced 0.74%.