A CUT in interest rates may still be on the cards tomorrow after a key survey yesterday showed growth in Britain's dominant service sector tumbling to a five-year low.
Bank of England policymakers had been widely expected to announce a freeze in the cost of borrowing at the conclusion of this month's rate-setting meeting amid persistent inflation worries.
However, analysts yesterday said the downbeat findings m
ay tip the balance in favour of a rate cut now rather than later in the summer.
The Chartered Institute for Purchasing and Supply (Cips) said its main purchasing managers' activity index had fallen from 52.1 in March to 50.4 last month – its lowest reading since March 2003 and well below analysts' expectations. A reading above 50 indicates growth, while anything below that mark signals contraction.
Confidence levels within the sector – everything from hotels and restaurants to shops and banks – sank to their lowest point since the aftermath of the 11 September terrorist attacks.
Vicky Redwood, an economist at Capital Economics, said a slowdown in the overall economy was "now well under way."
She added: "The (Bank of England's] monetary policy committee probably still sees the upside risks to inflation as severe enough to pause at least a month before cutting again, but the decision is perhaps now a bit less clear-cut than it previously seemed."
Howard Archer, chief UK economist at Global Insight, described the survey as "very worrying", noting that it followed on from recent weaker data relating to consumer confidence, retail sales, the housing market and manufacturing activity.
"While we suspect that a majority of MPC members will still be reluctant to enact back-to back interest rate cuts at this stage, the odds are stacked in favour of interest rates being down to 4.75 per cent by June," Archer said.
The full article contains 310 words and appears in The Scotsman newspaper.
