World Economy

UK Hit by ‘Triple Whammy’

UK Hit by ‘Triple Whammy’UK Hit by ‘Triple Whammy’

Interest rates could be cut towards zero after a ‘triple whammy’ of disappointment rocked the British economy, according to experts.

Rates in the UK have been frozen at 0.5% since March 5, 2009–seven years ago Saturday–but another cut is now on the cards to kick-start the faltering recovery, Yahoo reported.

A closely watched report yesterday showed Britain’s powerhouse services sector suffered its worst month for nearly three years in February.

It completed a hat-trick of bleak news this week following a sharp slowdown in the manufacturing and construction sectors.

Chris Williamson, chief economist at Markit, described it as a ‘triple whammy’ of disappointment for the British economy.

He added: ‘The extent of the slowdown will be a shock to policymakers and surely puts to bed any talk of raising interest rates.

‘The focus will instead shift to whether policymakers may soon need to dig deeper into their toolbox to introduce new measures to shore-up the economy.’

The Bank of England’s next monetary policy committee meeting winds up next Thursday and while a rate cut would be a shock, the policymakers’ comments on the UK’s economic direction will be closely watched.

The outlook is bleak for savers who have seen returns on cash deposits plummet to record lows over the last seven years. Money sat in an average instant access savings account since March 2009 would have lost 10.5% of its value, thanks to inflation exceeding interest earned.

The slowdown in the UK economy also sets the scene for a grim budget on March 16.

Chancellor George Osborne is struggling to meet his borrowing targets thanks to the effect on tax revenues of sluggish growth, and may be forced into tax hikes or even more stringent spending cuts.

Markit said its all-sector index of activity in the UK economy—where scores above 50 show growth—tumbled from 56.1 in January to 52.9 in February.

It was the weakest score for 34 months and the biggest decline since August 2011—leaving the UK on course for growth of just 0.3% in the first quarter of the year.

The services sector racked up a score of just 52.7—down from 55.6 and the weakest since March 2013.

In the wake of the disappointing PMI data, research firm IHS Global chopped its UK GDP growth forecast for this year to 1.9% from 2.1% previously. This would be down from growth of 2.2% in 2015 and 2.9% in 2014.

Howard Archer, IHS’s chief UK and European economist, said: “We now suspect that UK GDP growth in the first quarter is unlikely to be any better than 0.4% quarter-on-quarter and there is a very real risk that it could even be softer.”