U.K. Services Sector Slows Down Sharply

The U.K's dominant services sector, which accounts for 75% of the U.K. economy, almost ground to a halt in April, slumping to its lowest reading for five years, Purchasing Managers Index data released recently showed. News of the sharper-than-expected slowdown caused sterling to fall against the dollar and euro and increased the likelihood that the Bank of England will cut its key interest rate for the 4th time since Dec. when it meets. Data from research group NTC Economics recently showed the Purchasing Managers Index for the UK's services sector fell to 50.4 in April from March's 52.1. Economists surveyed by Dow Jones Newswires forecast the PMI reading would be 51.6. A reading above 50.0 indicates the sector is expanding, while a reading below 50.0 indicates it's contracting. The news caused the pound to fall sharply against major currencies. The slowdown in the services sector, which accounts for the bulk of UK economic activity, makes it more likely the BOE's Monetary Policy Committee will cut its key bank rate when it next meets, although the majority of economists still forecast a June cut. The MPC cut the bank rate to 5.0% from 5.25% in April, and has signaled further reductions will be needed to counter a slowdown in growth this year. A breakdown of the April data illustrated the U.K's deteriorating business climate. The outstanding business component sank to 45.1, the lowest level in five years. And price pressures remain elevated, with the input price balance surging to a 12-year high. Conditions aren't expected to improve much looking ahead, with new business orders falling to 51.5, also a 5-year low, the data showed. Weaker-than-expected activity in the services sector follows gloomy data on the manufacturing sector, consumer confidence, retail sales and the housing market.