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Last Updated: Wednesday, 5 March 2008, 10:23 GMT
Confidence level at four-year low
Giant cinema screen
Job numbers are being cut in the cinema and restaurant trades
Confidence among consumers and firms in the service sector has slumped ahead of Thursday's decision on interest rates.

Nationwide's consumer confidence index in February fell to its lowest level since it was launched in May 2004.

Research from the CBI also found that optimism among consumer service firms, including management and legal services companies, had hit a 15-month low.

But economists are predicting the Bank of England's Monetary Policy Committee will keep interest rates unchanged.

Consumers downbeat

Nationwide said the fall in its index in February, by three points to 78, was not a surprise given the slower housing market, rising food and fuel prices and uncertainty over future economic conditions.

There are too many worries about inflationary pressures and that will prevent the Bank of England being bold
Stephen Pope, of Cantor Fitzgerald

Some 46% of those polled thought the economic situation would have worsened in six months' time.

But Nationwide's senior economist, Martin Gahbauer, said that it was too early for February's 0.25% cut in the base rate to have had any effect on people's outlook.

A separate CBI study found service sector firms continued to be concerned about the outlook for the coming year.

"The services sector is beginning to feel the slowdown under way in other parts of the economy and firms are concerned about the outlook for their business over the coming year," said Ian McCafferty, chief economic adviser at the CBI.

"While demand has held up for most business services firms, some in management and legal services have been hit by slower mergers and acquisitions activity."

Employment effect

The number employed in restaurants and cinemas also fell away in the three months to February, according to the report, compiled by Grant Thornton.

It said employment in these areas would fall in the current quarter too.

The report comes ahead of the Bank of England's interest rate decision on Thursday.

Selling prices at consumer service sector firms remained above average, the study said, and were likely to rise over the next three months.

With factory gate inflation also apparently on the rise, it means the pressure could be on the Bank of England to resist any further interest rate cuts for now.

Change 'unlikely'

The Bank of England's Monetary Policy Committee (MPC) began its two-day monthly meeting on Wednesday and was widely expected to keep the base rate unchanged.

UK interest rates

In a poll of 62 economists by Reuters, all but one expected rates to be kept on hold this month, with 49 predicting the MPC would next cut rates in May.

The poll suggested interest rates could fall to 4.5% by the end of the year.

"As much as I see a need to cut rates again in the first quarter, I do not think the Bank of England will step up to the plate on this occasion," said Stephen Pope, at Cantor Fitzgerald.

"There are too many worries about inflationary pressures and that will prevent the Bank of England being bold."

Deutsche Bank chief UK economist George Buckley said: "We expect the economy to continue to deteriorate in the near-term. Much will depend on how both the real economy data and how inflation, and inflation expectations, develop."

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