Service sector growth slows

Britain's dominant service sector grew at a far slower pace than expected last month despite firms cutting prices to drum up business, adding to signs that the country may slip back into recession, a survey showed.

The Markit/CIPS Purchasing Managers' Index (PMI) for the service sector slumped to 51.3 in October from 52.9, falling short of expectations for a dip to 52.0 and edging closer to the 50 mark that separates growth from contraction.

"Another rather disappointing survey adds to fears that the recovery continued to lose momentum at the start of the fourth quarter," said Chris Williamson at data provider Markit.

"With manufacturing contracting, the October PMI surveys are signalling a heightened and substantial risk that the UK could slip back into recession. Any worsening of the PMIs in November or December would mean a contraction and this is likely," he added, saying fourth-quarter GDP could contract 0.1-0.2 percent.

On Tuesday PMI surveys showed Britain's manufacturing sector, once the bright spot in the country's lacklustre recovery, contracted at its fastest pace in more than two years in October as new orders plummeted.

Strong competition in the services sector, which accounts for around two-thirds of economic activity, forced firms to cut their fees for the first time since September 2010 – the prices charged index fell to 48.6 last month from 50.0 – even as input prices rose.

Inflation rose to a three-year high in September of 5.2 per cent, well above the Bank of England's 2 percent target, but is seen easing over coming quarters.

Despite inflation so far above target the Bank has already launched a second round of quantitative easing, pumping an additional £75bn into the economy, and policymakers have warned the country risks slipping into another recession.

Data released on Tuesday showed the economy grew 0.5 per cent last quarter, its strongest showing in two years, but economists see weaker growth ahead and gave a median one-in-three chance the country will head into another recession in the next 12 months.

Think tank NIESR said there was a near 50 per cent chance of another recession and predicted growth of just 0.8 per cent next year, much lower than the 1.3 per cent predicted in a Reuters poll, in a report published earlier.

The government has come under pressure to ease back on its austerity plans and instead introduce measures to boost growth.

But while Chancellor George Osborne acknowledged on Tuesday that the country faced a rough ride he reiterated his commitment to erase a record budget deficit of nearly 10 per cent of GDP