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Central banks in the Asia-Pacific region today kicked off a wave of interest rate cuts around the world, part of a week of coordinated action designed to breathe life into the global economy.
Sweden also unveiled an emergency cut, slashing its interest rates by almost half, with a record cut of 1.75 points to 2%, far bigger than had been expected. Sweden's central Riksbank said it expected rates to remain at the lower level over the coming year.
Earlier today, Indonesia's central bank surprised the markets with a cut of 25 basis points, to 9.25%, its first reduction for a year, while New Zealand slashed rates by a record 1.5 percentage points, to 5%.
The Bank of England is expected to cut rates by at least another percentage point today, while the European Central Bank looks poised to make a cut of 50 basis points to 2.75%.
The Bank of England's rates decision, which will come at midday, comes after evidence yesterday of the slump in the services sector pointed to a dramatic deterioration in the economy.
If the Bank's monetary policy committee cuts rates to 2%, as is widely expected in the City, that would be the lowest rate since late 1951, itself the lowest since the Bank was founded in 1694. If it cuts by more than 1%, as some predict, then rates will be at an all-time low.
Yesterday's monthly snapshot of the dominant services sector - which includes businesses from banks to airlines and hairdressers - hit a record low. The poor economic outlook saw the pound fall sharply to its lowest for 13 years against a basket of major currencies. It dropped to below $1.47 and to just above €1.16.
The services sector survey's purchasing managers' index, which measures everything from output to orders and jobs, tumbled to 40.1 last month, the lowest since the report began in 1996. As the figure is far below the 50 level that divides expansion from contraction, the survey suggests that the sector, which accounts for about two-thirds of the economy, is contracting rapidly.
Roy Ayliffe, of the Chartered Institute of Purchasing and Supply, said: "Purchasing managers in the services sector reported record falls across activity, new business and employment as the economic climate continued to worsen."
He said optimism had turned to pessimism for the first time in 12 years of the survey. Financial services, restaurants and hotels were particularly badly hit.
Similar surveys of the manufacturing and construction sectors this week also showed record drops.
James Knightley, of ING Financial Markets, said: "Given the weakness across all purchasing managers' indices, it looks as though we could see the economy contract by close to 1% in the fourth quarter.
"The first quarter of 2009 is likely to be similarly weak given the long lead times before the policy stimulus we have seen can take effect. This will put pressure on the BoE to continue delivering aggressive monetary easing and we expect to see a further 100 basis point [one percentage point] of rate cuts. Rates are then expected to fall to 1% early in the new year."
Howard Archer, economist at IHS Global Insight, said: "This is a desperately worrying survey given the importance of the dominant service sector to the UK economy. The heightened financial sector crisis has obviously taken a particularly heavy toll on the services sector, while the deep housing market downturn and markedly reduced consumer spending on services is also hitting the sector hard."
Consumer spending has been hard hit as well. Nationwide said yesterday that its monthly index of consumer confidence fell again to the lowest since its survey began in 2004. The index reading of 50 for November compares with 56 in October and 83 in November last year.
Fionnuala Earley, Nationwide's chief economist, said: "Reports of job cuts have almost certainly impacted on sentiment about the employment situation, causing purse strings to tighten further."
A similar survey yesterday of the services sector in the eurozone was equally weak, leading analysts to predict another interest rate cut from the European Central Bank today. Eurozone rates are at 3.25% and analysts expect the ECB to cut them to 2.5% or even lower.
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