UK services sector hits new low, calls for aggressive rate cut

The UK services sector, which is the backbone of the economy, is declining at a record rate as the closely monitored Purchasing Managers’ Index (PMI) fell to 40.1 in November from 42.4 in October, the lowest level and fastest decline since the survey started in 1996.

The index monitors everything from output to orders and jobs and a figure below 50 indicates a contraction in activity.

Hetal Mehta, senior economic advisor to the Ernst & Young Item Club, said the data is grim and with the services sector shrinking at a record pace and employment falling sharply, it is clear this recession is gathering momentum.

In the meantime, Nationwide Building Society’s index of sentiment fell from 56 to 50 during November, the lowest level since the survey began over four years ago.

The reading, which is taken from a survey of 1,000 people from October 20 to November 16, compares with 83 this time last year.

Furthermore, nearly half of those questioned (45%) believe that the economic situation will deteriorate over the next six months.

As a result of the doom and gloom, pressure is mounting on the Bank of England to slash interest rates. According to city experts, a 1.5% cut from the current 3% rate will be sufficient to kick-start spending on the High Street.

Last month, interest rates were slashed by 1.5% to 3%, following a 0.5% cut the previous month.

Should the Bank opt for such an aggressive rate cut, the official cost of borrowing would be at its lowest level since the Bank of England was established in 1694.

The Bank of England’s Monetary Policy Committee is due to announce its decision at midday tomorrow.

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