Interest rates on hold amid fears economy is stalling

Worst drop in growth since Lehman failure

The Bank of England kept interest rates at a record low yesterday after the economy suffered its biggest loss of momentum since the bankruptcy of Lehman Brothers triggered the global recession.

The Monetary Policy Committee's decision to put the weakening economy ahead of fears about inflation was widely expected after the gloomy data of recent weeks.

Yesterday's announcement of a slowdown in the all-important services sector reinforced the picture of a slowing economy after drops in manufacturing and construction growth. The three April PMI (Purchasing Managers Index) surveys suffered their largest drop since November 2008, just after Lehman went bust.

The dominant service sector grew less than expected in April after hitting a 13-month high in March. The Markit/Cips headline services PMI index slipped to 54.3 in April from 57.1 in March, staying in growth territory above 50.0 for a fourth straight month, but missing the 55.7 forecast.

The grim figures for April indicate the economy is slowing after the tepid 0.5 per cent growth in the first quarter of this year. Taken with the surprise 0.5 per cent contraction in the final quarter of 2010 the economy stagnated around the turn of the year.

The services survey highlighted the twin pressures faced by the MPC as it grapples with faltering economic growth and prices rising twice as fast as its 2 per cent target.

Average prices charged by services companies rose more steeply in April and registered the strongest reading since September 2008.

Markit's chief economist, Chris Williamson, said the hot April, volatile official construction figures, the royal wedding and the Japanese earthquake were among factors that confused the economic picture.

"This uncertainty, plus the modest rate of growth suggested by the PMIs, adds weight to the belief that policymakers at the Bank of England will err on the side of caution at the next two meetings at least, choosing to wait for a clearer picture of the pace of economic growth to emerge," he said.

All eyes will be on the minutes of the MPC's meeting in two weeks to see how the nine-strong committee split. Andrew Sentance, the MPC's resident inflation hawk, is expected to have voted again for a half-point increase in borrowing costs at his last meeting before leaving the committee.

But the bank's chief economist, Spencer Dale, and external member Martin Weale could have changed their positions in light of the recent grim data.

Mr Weale said two weeks ago he was disappointed by the economy's performance while Mr Dale has said his vote for a rate rise was based on growth returning to normal this year.

"The dynamics with the MPC could now change significantly, as the arch hawk Andrew Sentance is now leaving," The IHS Global Insight economist Howard Archer said: "We expect the BoE to delay raising interest rates... until November, and it is far from inconceivable that it could hold fire until 2012."

The Bank's Governor, Mervyn King, will present the Bank's latest set of quarterly economic forecasts next Wednesday. The MPC discussed the findings at this week's meeting.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
TV
Voices
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Sport
Steve Bruce and Gus Poyet clash
football
News
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
TV
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths
ebooks
ebooksA special investigation by Andy McSmith
Life and Style
life
Sport
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
News
Amazon misled consumers about subscription fees, the ASA has ruled
news
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn