Double dip fears as sector falls

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Britain’s dominant services sector shrank in October at its fastest pace since April, suggesting the economy may already have entered recession.

The monthly drop of 0.7 per cent in services output revealed by the Office for National Statistics yesterday reinforced views that the Bank of England will inject more cash into the economy in February once its current round of quantitative easing ends.

“The sharp fall ... is a major blow to GDP growth prospects and significantly fuels concern that the economy could contract in the fourth quarter,” said Howard Archer, economist at IHS Global Insight.

Pressures on cash-strapped consumers, businesses and the public sector are all squeezing services activity, he added.

The sector accounts for about three quarters of Britain’s output and was the main growth driver between July and September when the economy expanded by 0.6 per cent on the quarter.

Industrial output also fell at its sharpest pace in six months in October and business surveys are pointing to more weakness ahead.

“Business services turnover growth had slowed quite sharply over the past few months, reflecting weaker activity,” the Bank said this week in a summary of business conditions in November.

A sharply deteriorating growth outlook and worries that the eurozone debt crisis is tipping Britain back into a slump encouraged the central bank to restart its quantitative easing programme in October.

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