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Downturn points to cut in rates Downturn points to cut in rates
(about 3 hours later)
The Bank of England begins its monthly meeting on Wednesday amid calls for the biggest interest rate cut in 15 years.The Bank of England begins its monthly meeting on Wednesday amid calls for the biggest interest rate cut in 15 years.
The Bank is widely expected to cut rates from 4.5% as its tries to prevent a long and painful recession.The Bank is widely expected to cut rates from 4.5% as its tries to prevent a long and painful recession.
PricewaterhouseCoopers (PwC) is calling for a cut to 4% in its economic outlook which predicts a recession in 2009. Figures released on Wednesday indicated that both the service and manufacturing sectors are continuing to shrink.
But some business groups want the Bank to go further and cut rates by one percentage point to 3.5%, which would be the biggest cut since 1993. Some business groups want the Bank to cut rates by one percentage point to 3.5% on Thursday, which would be the biggest cut since 1993.
The interest rate decision will be announced at midday GMT on Thursday.The interest rate decision will be announced at midday GMT on Thursday.
'Deep recession'
Gloomy figures on the manufacturing and the service sectors released on Wednesday indicate that the financial crisis is now hitting home.
We need a real shock to the system that a significant rate cut will provide David Smith, Jaguar Land Rover chief executive
Activity in the service sector, the backbone of the UK economy, shrank in October for the sixth month in a row and was at its lowest level since 1996, according to an index compiled by the Chartered Institute of Purchase and Supply.
Meanwhile, the Office for National Statistics said that manufacturing output fell for a seventh month in September - the longest run of monthly declines since 1980.
Manufacturing output fell by 0.8% in September, much worse than analysts' expectations, making output 2.3% lower than a year earlier, the sharpest decline since May 2003.
Vicky Redwood, UK economist at Capital Economics, said Wednesday's data increased the chance of a one percentage point rate cut.
"These figures provide further evidence that the UK is entering a deep recession," she said.
'Calmer waters''Calmer waters'
Last month, the Bank cut its base rate from 5% to 4.5% in an emergency co-ordinated move by the world's central banks.Last month, the Bank cut its base rate from 5% to 4.5% in an emergency co-ordinated move by the world's central banks.
PricewaterhouseCoopers (PwC) is calling for a cut to 4% on Thursday but says rates will need to fall further. PricewaterhouseCoopers (PwC) has called for a cut to 4% on Thursday but says rates will need to fall further.
PwC predicts that the UK economy will grow by 1% this year and shrink 0.5% in 2009 before reaching "calmer waters in 2010".PwC predicts that the UK economy will grow by 1% this year and shrink 0.5% in 2009 before reaching "calmer waters in 2010".
"The Bank of England Monetary Policy Committee needs to cut interest rates progressively to 3% or lower in order to prepare the economy for the recovery we hope to see in 2010," said John Hawksworth, head of macroeconomics at PwC."The Bank of England Monetary Policy Committee needs to cut interest rates progressively to 3% or lower in order to prepare the economy for the recovery we hope to see in 2010," said John Hawksworth, head of macroeconomics at PwC.
The report also calls for the government to introduce stimulus measures, such as bringing forward some of the public spending that is currently planned for future years.
However, David Smith, the chief executive of Jaguar Land Rover, said a dramatic one percentage point was "absolutely vital" to kick start the economy.However, David Smith, the chief executive of Jaguar Land Rover, said a dramatic one percentage point was "absolutely vital" to kick start the economy.
"We need a real shock to the system that a significant rate cut will provide. Stimulating demand is crucial to avoid a deep and long recession, and interest rates are the place to start," Mr Smith said."We need a real shock to the system that a significant rate cut will provide. Stimulating demand is crucial to avoid a deep and long recession, and interest rates are the place to start," Mr Smith said.
A report from KMPG, based on a poll of recruitment consultants, showed that job vacancies fell at the fastest rate in 11 years as demand for staff had fallen heavily.
Growing confidenceGrowing confidence
The downturn is also evident in a KPMG report showing job vacancies falling at the fastest rate in the report's 11 year history.
KPMG's jobs report found demand for staff had fallen heavily.
Recruitment consultants they polled reported that the number of people getting permanent or temporary jobs had been the lowest in the 11 years that the data had been collected as had the number of vacancies available.
There was one better piece of news from Nationwide Building Society's consumer confidence index, which showed the first monthly increase in confidence this year.There was one better piece of news from Nationwide Building Society's consumer confidence index, which showed the first monthly increase in confidence this year.
Consumers were more pessimistic about the current economic climate but had become significantly more optimistic about how the economy would look in six months time.Consumers were more pessimistic about the current economic climate but had become significantly more optimistic about how the economy would look in six months time.
"The actions taken by the government and the Bank of England to support financial markets do seem to have buoyed consumers' confidence and could be responsible for the increased confidence in the future economic situation," said Nationwide's chief economist Fionnuala Earley."The actions taken by the government and the Bank of England to support financial markets do seem to have buoyed consumers' confidence and could be responsible for the increased confidence in the future economic situation," said Nationwide's chief economist Fionnuala Earley.
But while confidence has improved compared with September, with a reading up from 51 to 55, it has plummeted since October 2007 when it was at 91.But while confidence has improved compared with September, with a reading up from 51 to 55, it has plummeted since October 2007 when it was at 91.
Nationwide said there was a 40% chance that interest rates would be cut by half a point to 4%, and a 55% chance that they would be cut to 3.75%.Nationwide said there was a 40% chance that interest rates would be cut by half a point to 4%, and a 55% chance that they would be cut to 3.75%.