Businesses are increasingly worried about prospects for growth in the services sector, a closely watched survey showed on Tuesday - underlining the dilemma facing the Bank of England's monetary policy committee as it debates whether to cut rates on Thursday.
The survey, conducted by the Chartered Institute of Purchasing and Supply, showed that while the services sector - by far the UK's single largest - is continuing to grow, businesses are pessimistic about demand.
At the same time, more than a third of those surveyed reported that the prices of "inputs", such as utilities and wages, were rising.
Its survey of manufacturing issued earlier this week showed the weakest activity levels in more than two years while inflation at the factory gate rose to its highest level on record.
At one level, a quarter-point rate cut on Thursday is seen as a near-certainty. All of the 60 economists polled by Reuters have staked a reputation on that prediction.
And yet economists say privately that the MPC is probably as divided over the true economic picture as are the data.
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Overall, mounting evidence of falling mortgage demand and weaker house prices, slower consumer lending and a banking system that is, in some respects at least, grinding to a halt are offset by data showing that inflationary expectations are at their highest level since the Bank became independent in 1997.
"Every early guide to growth collapsing is collapsing," said Michael Saunders, economist at Citi. "On the other hand, every other indication says inflation is a threat."
Prices are being prodded upwards by price rises in chemicals, energy and transport costs.
The Citi/YouGov survey of inflationary expectations also hit a new peak of 3.3 per cent last week, up sharply from 2.7 per cent the month before.
The yardstick used by the surveys is the retail price index. The MPC, on the other hand, targets the consumer price index, which is running high but is lower than RPI.
Nevertheless, Mr Saunders points out, it is not just consumers or producers who see inflation on the horizon; the markets see it, too.
On 10- and 20-year time horizons, the gap between forward rates on index-linked gilts and conventional gilts are at their highest level since the Bank became independent. At 10 years, the gap is 3.9 percentage points - a year ago it was 3.2 percentage points. The gap is only slightly smaller at 20 years. "For the general public, inflation expectations have risen too high," he said. "So what do you do?"
Ultimately, market watchers are expecting a quarter-point rate cut at this meeting because that is what Mervyn King, Bank governor, all but promised in a speech in Bristol earlier this month.
His observation that, at 5.5 per cent, the Bank's rate was "bearing down on demand" was interpreted as a clear sign that the MPC felt it had wiggle room for a modest cut. But in a pointed reference to inflation,he noted that "economic challenges" were greater than at any time since the Bank became independent.
Robert Barrie, European economist at Credit Suisse, said those comments should be a signal that the MPC would move on rates incrementally, unlike the US Federal Reserve which slashed rates 1.25 percentage points in little over a week.
"The Bank is gradualist and progressive. The message we take from Mervyn King and the latest minutes are that it's 25 basis points, not 50 and that they're not doing it every month," he said.
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