Services in Slowest Growth in Four Years

Growth in the service sector businesses that drive the UK economy slowed to its weakest rate in four years last month, according to a survey that gives the Bank of England enough evidence to justify cutting interest rates in this week's finely-balanced decision.

The Chartered Institute of Purchasing and Supply and the research group NTC said recently their closely watched index of services activity fell from 53.1 in October to 51.9 in November, weaker than the modest slowdown expected and following a bigger drop the previous month. Confidence over future business dropped to its lowest level since March 2003.

Although any figure above 50 indicates expansion, a sectoral breakdown registered outright declines in activity, new business and employment in the financial intermediation companies that account for nearly a fifth of services output.

Analysts said the weak data suggested the economy was slowing faster than the Bank had previously thought and could persuade members of the monetary policy committee to vote for a cut in interest rates at the meeting.

The pound weakened on hopes of a rate cut, although the decision remains a close call and some MPC members will also be concerned at evidence that service companies remain able to raise prices as food and fuel inflation drives up costs.

One woman at Capital Economics said the survey was consistent with quarterly service sector output growth slowing to 0.6 per cent from 0.9 per cent in the third quarter.

She said the MPC held fire in November partly because it wanted to be sure that the economy was slowing as it had projected in its Inflation Report.

The service sector data offsets the optimistic outlook among manufacturing companies that account for a much smaller proportion of economic growth, and adds to gloomy indications that house prices and consumer confidence are also falling.

An economist at JPMorgan said a clutch of weak data revealed a marked adjustment in household behavior which is being paralleled on the output side of the economy.