Britain's service sector shrank at a record pace and factory output posted its longest decline since the 1980 recession, in a slew of bad news on Wednesday boosting the chances of a big Bank of England rate cut this week.
The pound fell around half a cent against the dollar as markets increasingly priced in a greater possibility of the BoE chopping rates by a full percentage point on Thursday, the biggest cut in 15 years, to ward off a prolonged recession.
"The escalation of the economic slowdown justifies, in our view, a full percentage point off interest rates at tomorrow's meeting," said Deutsche Bank chief UK economist George Buckley, who had previously forecast a half-point cut. The BoE will deliver its decision at 1200 GMT on Thursday. Analysts say whether it cuts rates by 50 basis points or a 100, borrowing costs are set to fall sharply from their current 4.5 percent in the coming months.
The news on the British economy has been unrelentingly grim and on Wednesday a survey by the Chartered Institute of Purchasing and Supply indicated the service sector in October shrank at its fastest since comparable records began in 1996. Separate official data showed factory output fell by 0.8 percent in September, twice the rate forecast by analysts and the seventh consecutive decline, the longest unbroken stretch of falls in 28 years.
"With signs that the deterioration in the economy intensified into the final stages of the year ... we believe the pressure is on the Bank of England to deliver deep interest rate cuts to help shore up the economy," said Bank of America's UK economist, Matthew Sharratt. Carmakers and auto parts companies led the decline in manufacturing, along with chemicals, paper, pulp and publishing companies.
The figures are unlikely to improve. Nissan halted production at its plant in north-east England for two weeks in October because of a slide in global demand. The wider industrial production measure did fall slightly less than expected, dropping 0.2 percent in September compared to economists' expectations of a 0.3 percent fall, but that was in part because of a surge in oil and gas output after summer maintenance work.
The jobs market is deteriorating fast. The Recruitment and Employment Confederation reported a record fall in job appointments and the first drop in wages for five years in October. Demand for staff shrank sharply and both permanent and temporary staff appointments were at their weakest level since the start of the REC survey in October 1997.
"The worst is probably yet to come," said Mike Stevens, a partner at accountants KPMG which helps publish the survey. Adecco, the world's largest staffing company, said on Wednesday that Britain was one of the countries where it was experiencing the sharpest fall in revenue. Nonetheless, consumer confidence rose last month for the first time this year, perhaps because of falling petrol prices, a survey by the Nation-wide building society showed.
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