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UK services sector activity hit by volcanic ash cloud

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by Kay Mitchell

Activity in the UK’s closely-watched service sector slowed in April, hit by the volcanic ash cloud which disrupted businesses.

Furthermore, activity was hit by concerns about the outcome of the general election, according to analysts.

The latest activity index from the Chartered Institute of Purchasing and Supply (CIPS)/Markit PMI showed a reading of 55.3 in April, down from 56.5 the previous month.

However, any reading above 50 indicates growth, which leaves the sector “firmly in positive territory” according to the CIPS/Markit.

Following the figures, the pound dipped to a five-week low against the US dollar to $1.5015, while it fell to 85.15p against the euro.

Commenting on the figures, David Noble, chief executive at the CIPS, said: “A slowdown in services sector growth shows that it wasn’t just planes that were grounded by the volcanic ash in April.

“However, just like the impact of the heavy snow in January, this is only likely to be a temporary blip and it is very encouraging to see the sector has grown so strongly this year despite these setbacks as well as the uncertainty surrounding the election,” added Mr Noble.

The UK’s service sector accounts for almost three quarters of GDP and covers businesses offering hospitality such as hotels, restaurants and catering.

However, today’s reading, which follows a 1.9% fall in March, will undoubtedly raise fears about the pace of economic recovery, say many analysts.

Last month, the Office for National Statistics revealed the UK economy grew by 0.2% in the January to March period – just half analysts’ expectations of 0.4%.

In related news, yesterday the CIPS/Markit construction PMI index grew in April at its fastest rate since September 2007 – prior to the economic downturn.

The index jumped to 58.2 in April, up from an unrevised 53.1 in the previous month.

The growth was attributed to a rise in new orders in the housebuilding sector, according to the survey.

Construction accounts for around 6% of Britain’s economic output.

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News posted: May 6, 2010

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