Pressure mounted on the Monetary Policy Committee to deliver a cut in UK interest rates on Thursday, after a clutch of weak data suggested the economy was slowing more abruptly than the Bank of England had hoped.
The purchasing managers' index of services activity, which the Bank of England relies on to improve its estimates of economic growth, fell from 53.1 to 51.9 in November. This is its lowest level since May 2003, when interest rates were only 3.75 per cent. In the housing sector, the Halifax index showed a fall for the third month in a row.
By Wednesday evening, money markets were betting on an 80 per cent probability of a cut - up from little more than a 50-50 chance at the start of the day. The pound had fallen 0.9 per cent against the currencies of Britain's main trading partners and many City economists fretted they had made a mistake in predicting rates would remain on hold at 5.75 per cent.
Investors warned of a turbulent reaction if rates were not cut. "The market seems hell bent on a base rate cut tomorrow," said David Buik of Cantor Index. "If they don't get one, hold your breath for a roller coaster ride."
Several analysts, including those at Barclays Capital, ING and Global Insight, changed their rate call from hold to cut and others said the decision was simply too close to call. Analysts said the purchasing managers' survey showed credit market worries were acting as a brake on the wider economy and could give the Bank the evidence it would need to justify cutting rates from their current level of 5.75 per cent.
"Demand for services has eased over the past three months with signs that firms serving the consumer are finding life increasingly difficult," said Ian McCafferty, the CBI's chief economic advisor.
The MPC has already signalled in its November inflation report that rate cuts were needed to stop inflation falling too far in the medium term, but said the outlook was highly uncertain. It faces a current problem in balancing the risks of slowing activity with those of rising inflationary pressures. The British Retail Consortium on Wednesday said higher food prices had fuelled the highest rate of shop price inflation so far this year.
Evidence of slowing service sector output was coupled with growing gloom over house prices. The Halifax said house prices fell 1.1 per cent last month, much weaker than expected, bringing the annual rate of house price inflation down from 8.9 per cent in October to 6.3 per cent.
While monthly changes in house prices are often volatile, the Halifax index has now fallen 2.4 per cent over the past three months. Michael Saunders, economist at Citigroup, said the fall was "the greatest for any three-month period since the dark days of 1992" and could be a prelude to sharp falls in consumer demand.
The purchasing managers' index of services activity, which the Bank of England relies on to improve its estimates of economic growth, fell from 53.1 to 51.9 in November. This is its lowest level since May 2003, when interest rates were only 3.75 per cent. In the housing sector, the Halifax index showed a fall for the third month in a row.
By Wednesday evening, money markets were betting on an 80 per cent probability of a cut - up from little more than a 50-50 chance at the start of the day. The pound had fallen 0.9 per cent against the currencies of Britain's main trading partners and many City economists fretted they had made a mistake in predicting rates would remain on hold at 5.75 per cent.
Investors warned of a turbulent reaction if rates were not cut. "The market seems hell bent on a base rate cut tomorrow," said David Buik of Cantor Index. "If they don't get one, hold your breath for a roller coaster ride."
Several analysts, including those at Barclays Capital, ING and Global Insight, changed their rate call from hold to cut and others said the decision was simply too close to call. Analysts said the purchasing managers' survey showed credit market worries were acting as a brake on the wider economy and could give the Bank the evidence it would need to justify cutting rates from their current level of 5.75 per cent.
"Demand for services has eased over the past three months with signs that firms serving the consumer are finding life increasingly difficult," said Ian McCafferty, the CBI's chief economic advisor.
The MPC has already signalled in its November inflation report that rate cuts were needed to stop inflation falling too far in the medium term, but said the outlook was highly uncertain. It faces a current problem in balancing the risks of slowing activity with those of rising inflationary pressures. The British Retail Consortium on Wednesday said higher food prices had fuelled the highest rate of shop price inflation so far this year.
Evidence of slowing service sector output was coupled with growing gloom over house prices. The Halifax said house prices fell 1.1 per cent last month, much weaker than expected, bringing the annual rate of house price inflation down from 8.9 per cent in October to 6.3 per cent.
While monthly changes in house prices are often volatile, the Halifax index has now fallen 2.4 per cent over the past three months. Michael Saunders, economist at Citigroup, said the fall was "the greatest for any three-month period since the dark days of 1992" and could be a prelude to sharp falls in consumer demand.
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