The UK may be some distance from a recession, but the latest figures suggest an economy undergoing a rapid loss in momentum. Surveys from the service, retail and manufacturing sectors all reveal a marked weakening in confidence and activity.
However, most City economists do not think the figures are sufficiently gloomy to push the Monetary Policy Committee (MPC) into cutting rates this Thursday, although some are shortening the odds on a quarter-point reduction. The money markets are pricing in at least two rate cuts by the Bank by the end of next year, as the credit squeeze drags on and inflationary pressures subside.
The most worrying news came from the Chartered Institute of Purchasing & Supply (CIPS), who said that last month represented the weakest rate of activity growth in the service sector since May 2003. Businesses were reluctant to commit to fresh investment, with business expectations at their weakest for more than a year. The findings are much in line with recent CBI surveys of that part of the economy. The British Retail Consortium/KPMG latest survey also showed a sharp deceleration in activity; UK retail sales rose 1 per cent on a year ago in October, the weakest growth rate since November 2006, and clothing is doing especially poorly. Services account for about three-quarters of GDP.
Manufacturing has also been weakening, after some years of robust performance in the face of the strong pound. The Office for National Statistics said output fell by 0.6 per cent between August and September. That was worse than City expectations, leaving the sector's growth in the third quarter of 2007 unchanged on the previous three months. Matthew Sharratt, an economist at Bank of America, said: " There is some risk of a surprise cut in rates by the MPC. On balance, however, we still believe the MPC will delay any easing until early next year."Reuse content