Services slide signals rate freeze

BRITAIN'S massive service sector put in its worst performance in more than a year in September, reinforcing expectations the Bank of England will freeze interest rates this week.

The CIPS/Reuters purchasing managers' report said firms reported that activity in their markets had cooled, making it harder to win new business.

The sector, which accounts for about 70% of total economic output, also grappled with higher costs for fuel, energy and raw materials, as well as rising staffing bills.

The report's headline business activity index registered 54.7, down sharply from August's 56.9 and the lowest since June 2003. The index, where a reading above 50 indicates expansion, has fallen steadily from January's seven-year peak of 59.8.

'This release supports the view that the Bank will leave rates on hold [at 4.75%] this week,' said James Knightley at ING Financial Markets.

Malcolm Barr at JP Morgan said the recent run of weak data raised the possibility of rate cuts around the turn of the year.

Supporting the view that the cost of borrowing is at or near its peak was news that mortgage equity withdrawal eased in the second quarter.

MEW, where homeowners cash in the rising value of their property to spend on major items, fell to £15bn from £15.4bn the previous quarter.

Meanwhile, the British Retail Consortium said shop prices were just 0.41% higher in September than a year ago.

The Bank's monetary policy committee will announce its rates decision at noon on Thursday.