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UK services slow sharply in May, raising concerns about recovery

[LONDON] Growth in Britain's service sector suffered its sharpest slowdown in nearly four years in May, according to a survey which suggested a recent cooling of the economy might last longer than previously thought.

The Markit/CIPS services purchasing managers' index (PMI) slipped back to 56.5 last month, still comfortably in growth territory but down sharply from 59.5 in April. It was its lowest level since December.

The monthly drop was the biggest since August 2011, and the reading undercut even the lowest forecast in a Reuters poll of economists.

Combined with a weak manufacturing figure and a bounce in construction, growth across the three sectors in May was the slowest since December and the second-weakest for two years, Markit said.

Britain's economy was probably growing at a quarterly pace of 0.4 per cent in May, Markit said, up only slightly from a surprisingly weak 0.3 per cent expansion in the first quarter of 2015.

Chris Williamson, Markit's chief economist, said the weakness would be a concern for the Bank of England which is considering when to raise interest rates from a record low of 0.5 per cent, where they have sat since the financial crisis.

But at the same time, the index showed signs that rock-bottom inflation could pick up.

Input prices increased at the fastest rate in eight months and prices charged by service providers rose after their sharpest fall in over three years in April.

"Rate hikes later this year should not be ruled out," Mr Williamson said.

He said some of the slowdown could turn out to have been caused by uncertainty about the outcome of Britain's national election which was held on May 7.

The unexpectedly decisive victory of Prime Minister David Cameron and his Conservative Party translated into stronger sentiment about the future among services firms although growth in employment was its slowest in five months, Markit said.

The PMI surveys in the first few months of 2015 suggested the economy grew more strongly than the pace reported by official data.

REUTERS