Data this morning (3rd February 2010) has revealed that the UK's dominant service sector continued to expand for the ninth consecutive month in January.

However, the data showed that the services purchasing managers index fell to 54.5 down from 56.8 in December. The figure failed to meet expectations, with forecasters anticipating a more modest drop to just 56.6. That the rate of expansion has slowed quite markedly may renew doubts over the stability of the UK economic recovery.

Duncan Higgins, senior analyst at Caxton FX stated, “The data will certainly disappoint, particularly after the PMI readings from the manufacturing and construction industries earlier this week showed such improvement this month. The industry is still expanding though, which is supportive of economic growth in this quarter."

Higgins continued, “The figures have sent the pound lower, though market reaction has been muted ahead of policy announcements from both the BoE and ECB tomorrow. Investors are awaiting confirmation that quantitative easing will end, which should give the UK currency a boost.”

Sterling has fallen 0.2% against both the euro and US dollar in the wake of the news.