UK services sector 'hit by costs'

The UK services sector grew at its slowest rate in nearly five years in April as costs rose, data suggests.

An index of service sector activity from the Chartered Institute for Purchasing and Supply fell to 50.4 in April, from 52.1 in March.A reading over 50 indicates growth and anything under that shows contraction. The service sector accounts for two-thirds of the UK economy.

The Bank of England faces the threat of slowing growth while costs surge.

'Economic uncertainties'

On Thursday, the UK's central bank is set to make its next interest rate decision.However, minutes from the last meeting revealed sharp divisions among members of the rate-setting group, the Monetary Policy Committee (MCP).

Six members favoured the cut from 5.25% to 5%, two members wanted rates kept on hold and one member favoured a larger cut to 4.75%.While analysts think the bank will cut rates again, many now say this is unlikely to happen until June.

"With demand showing signs of faltering in line with the economic uncertainties created by the credit crunch and spending being squeezed by the seemingly relentless rises in costs, growth of activity, perhaps unsurprisingly, stalled during April," said economist Paul Smith from NTC, which conducts the survey.

While the amount that firms are being charged rose, the amount they are charging fell somewhat.The input price index rose to 67.3 in April from 66.2, while the index for prices charged declined to 55.2, from 56.2 the month before.

"Concerns persist over margins as input cost inflation shows little sign of abating, whilst weakened demand is placing downward pressure on pricing power," said Mr Smith.