Fresh fears for the economy

A DRAMATIC slump in business confidence today sparked fresh fears about the economy and prompted industry calls for the Bank of England to signal that interest rates have peaked.

A poll of more than 5,000 firms by the British Chambers of Commerce found the dominant services sector - which accounts for about 70% of total output - bore the brunt of the slowdown in the third quarter, with domestic and export orders falling sharply. Manufacturing continued to struggle, particularly in overseas markets.

The service sector's turnover confidence balance tumbled 12 points to 41%.

Profitability confidence also fell 12 points, to 35%. Confidence among service firms fell more sharply than in manufacturing, and to its lowest since the second quarter of 2003.

As a result, they intend to hire fewer staff and cut back on investment.

BCC director general David Frost said: 'We have a major concern that business confidence is falling in the service sector, which has a vital role to play in sustaining-economic activity and job creation.'

Warning the BCC was likely to cut growth forecasts, Frost added: 'We believe the weakness in some economic indicators means the threat of further interest rate rises should now be lifted.'

But Bank Governor Mervyn King said earlier this week it was 'not fair' to say rates had peaked, adding the monetary policy committee must weigh weaker activity against sterling's fall and other cost pressures.

Today's report showed higher borrowing costs are the biggest concern. Economist Daragh Maher at Calyon said: 'The survey is consistent with a sense of growing wariness regarding prospects and suggests a rate hike in the near-term would be unwelcome.'

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