Services slowdown signals rate cuts

GROWTH in Britain's massive services sector slowed to its weakest in three months in December as business and spending decisions were put on ice until the New Year.

Triggering fresh speculation about interest rate cuts this year, the closely-watched purchasing managers' index from the Chartered Institute of Purchasing and Supply registered 54.9 against 56.7 in November. A reading above 50 indicates expansion.

The biggest deterioration was seen in the outstanding business part of the survey, which shrank at its fastest rate for 18 months. Growth in new orders and employment slowed sharply and, compounding problems, there was another jump in input costs.

The disappointing news comes days after the manufacturing version of the survey revealed a marked industry slowdown in December.

James Knightley, economist at ING Financial Markets, said: 'The trend is downwards and, with economic uncertainty growing - particularly in the household sector - we remain of the view that interest rates will end the year below current levels.'

The Bank of England's monetary policy committee meets next week.