By Khushi Singh and Shubham Batra
(Reuters) -Britain's blue-chip stock index started the week on a tepid note as the pound slipped to a near eight-week low against the greenback following strong U.S. economic data that pushed investors to trim their rate cut bets for 2024.
The internationally focused FTSE 100 index closed flat after paring gains during the session, while the domestically focused FTSE 250 fell 0.8%.
The pound fell to its lowest against the dollar since Dec. 13 after a survey showed the U.S. services sector picked up in January and Federal Reserve Chair Jerome Powell said in an interview that the Fed would "give it some time" before cutting interest rates.
British services businesses started 2024 on a robust footing, with a solid inflow of new orders and the fastest hiring in six months, a survey showed.
Meanwhile, another survey showed Britain's unemployment rate was much lower late last year than previously thought, increasing caution around early rate cuts.
The majority of money markets now expect the Bank of England to initiate interest rate cuts at their monetary policy meeting in June.
"Upside momentum was tempered by a hotter than expected ISM services report out of the US which could make the Federal Reserve even more cautious when it comes to a rate cut, after prices paid jumped to its highest level in 11 months," said Michael Hewson, chief market analyst at CMC Markets UK.
Shares of automobiles and parts led the declines among sectors with a 2.1% fall to hit a three-month low.
Vodafone (LON:VOD) shares fell 3.3% after service revenue growth in Germany slowed sharply in the third quarter.
Luxury spirits maker Diageo (LON:DGE) gained 1.6%, lifting the broader beverages sector by 1.4%.
In other corporate news, shares of CMC Markets gained 18.2% after the online trading platform announced layoffs representing 17% of its overall staff.
GSK (LON:GSK) climbed 3.2% after Deutsche Bank (ETR:DBKGn) raised the target price on global biopharma company to 1950 pounds, from 1850 pounds earlier.