Investing.com - The pound fell against the dollar on Wednesday, nearing one year lows after a report showed that the U.K. service sector expanded at the slowest rate in 17 months in October, adding to signs that the pace of the economic recovery is cooling.
GBP/USD was down 0.70% to 1.5890, from around 1.5927 ahead of the release of the data.
Research firm Markit reported that the U.K. services purchasing managers’ index fell to 56.2, the lowest reading since May 2013, from 58.7 in September. Economists had expected the index to tick down to 58.5.
Business confidence weakened slightly last month the report said, but also noted that firms did keep hiring staff.
The weak data indicated that the Bank of England would keep interest rates on hold for longer in order to gauge the full extent of the slowdown in the recovery.
“A sharp easing of service sector growth to the weakest since May of last year comes on the heels of data showing construction growth sliding to a five-month low and the goods-producing sector shifting down a gear since earlier in the year,” Chris Williamson, Markit’s chief economist said.
“After GDP growth slowed to 0.7% in the third quarter, a 0.5% expansion is currently being signalled by the surveys for the fourth quarter. However, with inflows of work rising across all three sectors at the slowest rate for 16 months, there is a risk that economic growth could weaken further”.
The dollar remained broadly stronger after the Republican Party won control of the Senate in the U.S. mid-term elections, raising hopes for an end to political deadlock in Washington.
Sterling was also weaker against the euro, with EUR/GBP rising 0.20% to 0.7854 from 0.7814 ahead of the data.
Investors were looking ahead to the outcome of the upcoming European Central Bank meeting on Thursday after the Bank of Japan’s surprise stimulus move on Friday fuelled expectations that the ECB will soon follow suit.
In the euro zone, data on Wednesday showed that the composite services PMI, which measures activity across the region’s private sector, edged up to 52.1 from 52.0 in September, indicating only modest growth.
A separate report showed that euro zone retail sales dropped 1.3% from a month earlier in September, compared to expectations for a decline of 0.8%.