The economy has begun to slow across the board in the wake of the credit crisis, according to surveys and official data released yesterday that showed weakness in retail, services and manufacturing.

Business activity in the dominant services sector crumbled last month to grow at its feeblest pace since May 2003, according to the CIPS/RBS purchasing managers’ index (PMI). It is one of the measures most closely scrutinised by the Bank of England when deciding on interest rates.

The PMI survey does not include retail, but a separate report from the British Retail Consortium showed that the high street endured its worst period for 11 months in October. Like-for-like sales, a measure that strips out changes in floorspace, rose by just 1 per cent, compared with 3 per cent the previous month.

The manufacturing sector was also unable to buck the trend. Data showed its output fell by 0.6 per cent in September. The wider measure of industrial production fell by 0.4 per cent despite the Office for National Statistics having previously pencilled-in a 0.2 per cent rise in provisional estimates of GDP.

Analysts said the figures revealed that the UK’s output growth had peaked in the third quarter and was now starting to fall. The decline in the PMI measure of services activity was the most drastic in six and a half years. The headline index dropped to 53.1 last month from 56.7 in September, on a scale where any figure above 50 indicates rising activity. The details of the report showed a sharp drop in new business growth and a loss of confidence among companies.

The downturn comes as the effect of the Bank of England’s five interest rate rises since August 2006 start to affect the whole economy.

Kevin Hawkins, director-general of the British Retail Consortium, said that the high street’s loss of momentum last month reflected a downward trend caused by higher mortgage costs and other pressures on incomes.

Joanne Denney-Finch, of IGD, the food market analysts, said that food and drink sellers had begun selling their Christmas range relatively early in recognition that consumers were tightening their belts.

Verdict Research, the retail analysts, predicted that the high street would suffer after Christmas. But shoppers were still expected to spend a record £1,300 per head in the fourth quarter, relying ever more heavily on credit.

Nick Gladding, of Verdict, said: “Shoppers never want to be seen as mean at Christmas and will postpone any cutbacks until the New Year.”

The latest figures heighten the conundrum facing the Bank of England as it prepares to set rates this week. While indicators point to a sharp slow-down in growth next year following the credit crisis, inflation remains a persistent threat. PMI surveys for both services and manufacturing suggest that prices are rising much faster than the Bank is normally comfortable with when cutting rates, said Jonathan Loynes of Capital Economics.

He added that the Bank was probably more anxious than normal to wait for a clear sign that prices are slowing in response to weaker growth.

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