Service sector slumps

Activity in the dominant services sector slumped in October at the fastest pace since April, data showed, pointing to contraction of the economy in the final quarter and highlighting the danger of recession.

The seasonally adjusted index of services dropped by 0.7 per cent in October compared to the previous month, taking the three-monthly rate of growth down to 0.2 per cent, the Office for National Statistics said.

The numbers follow figures showing that industrial output also fell at the sharpest pace in six months in October, indicating a weak start to the fourth quarter and raising the chances that Britain has already entered recession.

A sharply deteriorating growth outlook and worries that the euro zone debt crisis is tipping Britain back into recession encouraged the Bank of England to restart its quantitative easing programme in October.

The central bank has left the door open for further stimulus in February, and most economists reckon it will inject as much as 75 billion pounds on top of the 75 billion it added in October.

The services sector was the main driver of growth in the third quarter when the economy expanded by 0.6 per cent on the quarter.

The ONS said on Friday major drags on services output were telecommunications, computer programming and financial services excluding insurance and pension funds.

Earlier this month, the Markit/CIPS Purchasing Managers' Index (PMI) showed that the services sector picked up slightly in November, defying forecasts it would stagnate.

Separately, the statistics office reported that labour productivity across all sectors of the economy rose 0.2 per cent in the third quarter on output-per-hour basis.

Unit wage costs for the whole economy rose by a quarterly 0.5 per cent in the third quarter.