By Claire West

The UK’s economic recovery was under further strain this morning after a UK purchasing managers’ survey fell more than expected in August. The British service sector activity grew at its slowest pace since April 2009, with a decline in hiring as employers worried about an economic slowdown and public spending cuts.

The pound fell around half a cent against the dollar after the index dropped to 51.3 in August, from July’s 53.1. A reading over 50.0 suggests growth in the economy. This was a much sharper fall than the 52.9 forecast by economists. The pound fell to $1.5400, from $1.5423 before the release. The euro rose to 83.28 pence from 83.00 before the report.

Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments commented, “Whilst we are still growing, UK data is turning softer and the pace of growth is weakening. I don’t think this data is a blip as we have seen consistently weak growth from the U.S. and it looks to be feeding into our numbers.

“Concern remains extremely high amongst businesses that the global economic slowdown will impact on their growth and development, and unfortunately data such as this adds to the mounting fears that growth will be weak going forward.”

Duncan Higgins, senior analyst at Caxton FX comments:

“The index has now dropped for three consecutive months and the road ahead is far from stable. It confirms a marked slowdown in output throughout the UK economy putting further pressure on the pound which has all but erased this morning’s gains.”

“It’s certainly discouraging to see all three leading indices drop significantly in one month. With the government’s spending cuts and tax hikes yet to really bite, the prospects for second half economic growth are not shaping up too strongly.”