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Wednesday, 3 October, 2001, 13:34 GMT 14:34 UK
UK service sector shrinks
People at a cafe/restaurant
Restaurants have suffered from a lack of tourists
The UK's service sector has contracted for the first time in two and half years, according to the latest survey by the Chartered Institute of Purchasing and Supply.

The survey also found that confidence in future business has fallen to its lowest level for three years.

The transport, hotel and restaurant sectors were particularly badly hit as tourism suffered in the aftermath of the terrorist attacks on the US.

The news is seen as raising the chances of a further cut in UK interest rates.

The Bank of England is currently holding its regular monthly meeting on interest rates, and will announce its decision on Thursday.

Mixed signals

Firms in the service sector account for around two-thirds of the British economy and until now have managed to offset the recession currently being experienced in manufacturing.

The UK is not alone in seeing its service sector suffer.

A Reuters survey has shown that the service sector across Europe shrank in September for the first time in at least three years.

But another study from the UK's Confederation of British Industry (CBI) appeared to contradict the findings of the chartered institute (CIPS).

The CBI said retail sales grew at their fastest rate last month for five years.

Rate cut?

The mixed messages come at a crucial time, with the Bank of England currently deliberating over whether to cut UK interest rates again.

Analysts think the CIPS figures make a further cut more likely.

"We were looking for a quarter-point cut before these numbers and I think these will probably seal that now," said Ross Walker at the Royal Bank of Scotland.

See also:

03 Oct 01 | Business
Attack hits European service sector
03 Oct 01 | Business
UK shoppers shrug off gloom
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