Services hit by spending drought

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The Chartered Institute of Purchasing and Supply's (CIPS) services index - which measures overall activity for the industry - was 46 in September. A reading below 50 signals industry contraction.

It is down from 49.2 in August, the biggest drop since the series began in 1996 and the fifth month in a row the service sector has contracted.

CIPS said business for hotels and restaurants was among those areas worst hit as customers reined in their spending.

Howard Archer, chief UK economist at Global Insight, said: "The sharp decline in service sector activity in September leaves little doubt that the economy contracted in the third quarter and is on its way into recession."

Service activity makes up around three-quarters of the UK economy.

CIPS reported a range of gloomy data for September.

The new business index was 45.2, the fifth month in a row that incoming trade has declined.

And job losses in the sector also looked to have continued for a fifth successive month, with the employment index of 47.3 meaning that fewer people were employed last month. Firms reported a combination of the non-replacement of leavers and forced lay-offs.

There was a slight bright spot in the form of easing inflationary pressures. Input cost inflation eased to its lowest since January as service providers benefited from a reduction of fuel prices.