Investing.com - Although the U.K. service sector increased its activity slightly in March, it still remains subdued with quarterly output growth at a three year low, industry data showed on Tuesday.
In a report, market research group Markit said the seasonally adjusted Markit/CIPS Services Purchasing Managers Index rose to 53.7 last month from a reading of 52.7 in February that was close to a three-year low. Analysts had expected the index to increase to 53.7 in March.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Despite the slight advance from February levels, March rounded off the weakest quarter of output growth in the British services sector since the first quarter of 2013.
The data also revealed the slowest increase in new business since January 2013.
Meanwhile, charges levied by service providers rose at the fastest pace in over two years.
Markit chief economist Chris Williamson pointed out that the upturn in the pace of the surface sector growth was insufficient to prevent PMI surveys from collectively indicating a slowdown in economic growth in the first quarter and forecast GDP growth of 0.4%, compared to the 0.6% expansion in the fourth quarter.
Additionally, Williamson said that business confidence remained weak due to concerns about the global economy and nerves on edge due to the upcoming referendum on the U.K.’s membership in the European Union or further government spending cuts announced in the budget.
He also noted that it was unlikely that March’s upturn in the pace of growth represented the start of a longer-term upswing and forecast that growth is likely to weaken further in the second quarter.
“With the PMI already in territory traditionally associated with the Bank of England choosing to loosen policy, interest rate hikes seem a long way off,” Williamson added.
GBP/USD was trading at 1.4217 from around 1.4220 ahead of the release of the data, while EUR/GBP was at 0.7993 from 0.7988 earlier.
Meanwhile, European stock markets remained broadly lower, with London’s FTSE 100 falling 1.39%. The EURO STOXX 50 lost 1.98%, France's CAC 40 traded down 2.10%, while Germany's DAX shed 2.51%.