Tweet
Activity in Britain's services sector shrank last month at its fastest pace in at least 12 years, fuelling predictions that the Bank of England will cut interest rates by as much as one percentage point tomorrow.
The Chartered Institute of Purchasing and Supply said today that its index of services activity fell to 42.4 in October, from 46.0 in September - the eighth monthly fall in a row. Any reading below 50 indicates a slowdown. The month-on-month contraction is the biggest since the survey began in 1996.
Roy Ayliffe, director of professional practice at the CIPS, said that the record decline in the services sector showed that firms are preparing for "a long and hard-hitting recession".
"Though inflation was curbed slightly, the sector saw little relief as energy, utility and insurance bills continued to grow. The final sting in the tail for struggling firms was the rise in the minimum wage which came into effect last month," Ayliffe said.
Economists believe that the easing in inflationary pressures will now give the Bank's monetary policy committee more scope to cut interest rates tomorrow. It lopped 50 basis points off rates in an emergency meeting last month to leave them standing at 4.5%.
Howard Archer at IHS Global Insight said that the Bank should cut rates "aggressively" tomorrow. "With the data indicating that the downturn is deepening and inflationary pressures are waning, we believe there is an extremely strong case for the MPC to slash interest rates from 4.50% to 3.50% on Thursday," he said.
Yesterday the CBI urged the MPC to make a 1% cut, warning that "strong medicine" was needed to avert a deep recession.
The Office for National Statistics also added to the mounting pile of gloomy economic data out today when it said that manufacturing output fell much further than expected in September, marking the longest stretch of monthly declines in 28 years. Output dropped by 0.8% in the month to September and industrial production decreased by 0.2%.
Vicky Redwood at Capital Economics said that the drop was expected, "but nonetheless confirmed that industry has been in recession for the last two quarters".
"Overall, these figures provide further evidence that the UK is entering a deep recession. Whatever happens tomorrow, interest rates need to fall to a very low level," she added.
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
