Industry slow-down boosts hopes of rates staying on hold

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Economic growth suffered a double whammy last month with high street shops and manufacturers experiencing a marked slowdown.

Economic growth suffered a double whammy last month with high street shops and manufacturers experiencing a marked slowdown.

The two snapshots of activity appeared to show Britain had entered a slowdown and boosted hopes that interest rates would stay on hold next week.

The reports hit the pound, which fell to a three-week low of 59.3p against the euro. Short-sterling futures, a market guide to future levels of interest rates, signalled falling rates after weeks of sitting on the fence.

The strongest message came from an authoritative measure of manufacturing activity showing the sector contracted in October for the first time in 18 months. The main reason was a sharp fall in delayed deliveries - a sign of weaker activity - while there were also negative contributions from job cuts and lower stock levels.

The Chartered Institute of Purchasing and Supply said its index fell below 50, the dividing line between expansion and contraction, for the first time since April 1999. "Continued slower growth of order books and a virtual stagnation of output also contributed to the poor performance," CIPS said.

The gloom was compounded by a report from the Confederation of British Industry showing growth in high street sales slowed to a halt last month. Retailers reported zero increase in sales in October compared with a year ago, the first time growth has been flat since January 1999.

Alastair Eperon, chairman of the survey panel, said: "This data, coupled with CBI surveys on manufacturing and pay, suggests interest rates are best left on hold for the time being."

However, the latest set of official data, published two months ago, showed a 4.6 per cent growth in retail sales in the year to September. The equivalent CBI survey reported the slowest growth for 17 months.

Mr Eperon drew scepticism from analysts for saying that, despite yesterday's survey, sales were "moderating rather than grinding to a halt". Neil Parker of Royal Bank of Scotland said: "This survey should be taken with a pinch of salt."

Economists said both surveys hinted at a delayed impact from the September fuel crisis and possibly from bad weather earlier last month. "This makes it more likely the MPC will keep rates on hold," said Adam Law at Barclays Capital.

There was a less downbeat view of the economy from the housing market, with Nationwide reporting its second consecutive month of price rises. The building society said house prices rose 0.9 per cent in October. The cost of the average home is 9.9 per cent up on a year ago, its lowest annual rate since August 1999.

David Parry, Nationwide's planning director, said: "We expect moderate price increases for the remainder of the year."