U.K. Services Shrank for a Ninth Month in January, CIPS Says

By Jennifer Ryan

Feb. 4 (Bloomberg) -- U.K. service industries from banks to airlines contracted for a ninth month in January as the credit squeeze kept the nation mired in the recession.

An index based on a survey of about 700 service companies by the Chartered Institute of Purchasing and Supply was at 42.5, compared with 40.2 in December, the Markit research company said today. The result exceeded the 40.3 forecast in a Bloomberg News survey of 29 economists.

Royal Bank of Scotland Group Plc said last month it may post the biggest loss ever by a U.K. company, prompting the government to raise its stake in the lender. The Bank of England may cut the benchmark interest rate to a record low from the current 1.5 percent tomorrow as it prepares to buy assets such as corporate bonds to unblock credit markets.

“We’re going to get more bad news on services,” said James Knightley, an economist at ING Financial Markets in London. “If lenders continue to restrict access to credit, the Bank of England is going to try to ease conditions as much as possible.”

The U.K. economy will contract 2.7 percent this year as the financial market turmoil inhibits bank lending and stymies growth, the National Institute for Economic and Social Research said in a separate report today.

The government increased its stake in Royal Bank of Scotland to 70 percent after the lender said Jan. 19 it may post a loss of as much as 28 billion pounds ($40 billion). Moody’s Investors Service cut the bank’s credit rating to Aa3 from Aa1 the next day, and lowered Barclays Plc’s grade on Feb. 2 on risks the bank may announce more credit losses and bad loans.

Consumer Confidence

Consumer confidence sank to the lowest level since at least 2004 last month as shoppers found it harder to access credit and became more concerned about job losses, Nationwide Building Society said today.

The Bank of England said Jan. 21 it will buy “high- quality” assets “within weeks” to ease market strains. Governor Mervyn King is pursuing alternative measures to revive lending after cutting the key rate to 1.5 percent last month, the lowest since the bank was founded in 1694.

Policy makers may still lower the benchmark by another half point tomorrow to 1 percent, according to the median forecast of 61 economists in a Bloomberg News survey.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net