The UK service sector is contracting at a record rate as the UK looks set to enter a deep recession.

The CIPS/Markit UK services purchasing managers index (PMI) fell to a record low of 40.1 points – the seventh month in a row showing a fall.

A total of 38 per cent of firms recorded a decline in business in November – many citing a retrenchment of spending and demand in the UK.

Hotels and restaurants were most downbeat about the future, while the IT sector remained comparatively optimistic.

The research shows businesses report clients were postponing decision making, instead adopting a ‘wait-and-see’ policy at a time of heightened economic uncertainty.

Measures for employment and upcoming business were also down.

The fall in oil prices and other input prices had aided firms in the service sector – but the falling value of sterling had upped import costs.

Paul Smith, senior economist at Markit Economics, said: “The UK service sector data again surprised on the downside during November, with activity, new orders and employment all falling at survey record rates.

“Combined with the appalling numbers for manufacturing and construction, the survey confirms that recession is now snowballing and heading into deeper territory as 2008 draws to a close.”

The service sector PMI is the last in a series this weak from CIPS showing record declines across all sectors – as the ferocity of the UK recession takes bystanders by storm.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said: “New lows have been hit in all three CIPS surveys this week highlighting the worsening prospects for the economy as the year draws to a close.

“Output now looks likely to contract by at least 1.5 per cent in 2009 with no hiding place outside of the public sector.”

He went on to call on the Bank of England to cut interest rates by one per cent when it announces its decision tomorrow.

“Base rates need to be cut by a full one per cent at this week’s meeting as part of the shock treatment to instil some life into the moribund patient.”

Mr Smith said: “It seems inevitable that the Bank of England will deliver another substantial rate cut on Thursday as it tries desperately to support growth and confidence.

“So far, the Bank appears to be losing the battle, with evidence from the latest survey suggesting that credit conditions remain extremely tight.”