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LONDON: Britain’s pound fell to its lowest level in over a week against the euro after data showed a sharp slowdown in business activity, adding to concerns that the UK could slip into recession later this year.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI), a monthly gauge of the services and manufacturing industries, fell to 51.8 in May from 57.6 in April, its lowest level since February last year.

The preliminary reading was worse than all forecasts in a Reuters poll of economists, which had pointed to a drop to 57.0.

“This sudden deterioration in growth prospects will come as a massive worry to the Bank of England and will certainly throw further rate hikes into question,” said Infinox financial market analyst Richard Perry.

“This further firms our expectation that another one, or at most, two 25bps hikes will be possible before the BoE is required to reassess its tightening outlook.” Money markets are currently fully pricing in a 25 basis point rate rise from the BoE at its June policy meeting and 114 basis points of tightening by the end of the year, down from around 125 basis points on Friday after strong retail sales data.

At 1420 GMT, the pound was down 1.0% against the euro to 85.80 pence, after earlier touching its weakest level against the single currency since May 12.

Sterling was down 0.6% against the dollar at $1.2522 after earlier falling as much as 0.8% below $1.2500.

In bond markets, British gilt yields declined sharply as investors reassessed the rate outlook following the data.

The yield on the rate-sensitive two-year government bond fell over 15 basis points to 1.418%, the steepest fall since March 1. The 10-year yield was down 11.5 basis points to 1.856%.

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