Britain's service sector expanded at its slowest pace in three months in December as orders growth moderated and expectations for the future eased to their weakest in one and a half years according to new data released today.
The figures are likely to support the view that the Bank of England can afford to keep interest rates on hold at 4.75 per cent for several months to see how the economy fares, although many analysts believe the next move is likely to be down.
The Chartered Institute of Purchasing and Supply/NTC index of service sector business fell to 54.9 last month from 56.7 in November. Analysts had predicted a more modest fall to 56.5.
The report painted a relatively resilient picture of the service sector as the index held above the 50 mark which separates expansion from contraction and remained higher than the 52.6 level reported yesterday for euro zone services.
"This is a disappointing release, but still points to reasonable growth in the service sector," said James Knightley, economist at ING Financial Markets.
"However, the trend is downwards, and with UK economic uncertainty growing, particularly in the household sector, we remain of the view that interest rates will end the year below current levels."
Sterling fell to a six-week low against the dollar following the release of the data but gilts and short sterling interest rate futures barely moved.
The slowdown in overall activity was driven by weaker growth in new business, with the new orders index falling to 55.4 in December from 56.8 in November.
The business expectations index edged down to 73.7 in December from 74.1, a modest decline, but at its lowest level since June 2003.