Britain's dominant service sector grew at a far slower pace than expected last month despite firms cutting prices to drum up business, adding to signs that the country may slip back into recession, a survey showed on Thursday.

The Markit/CIPS Purchasing Managers' Index (PMI) for the service sector slumped to 51.3 in October from 52.9, falling short of expectations for a dip to 52.0 and edging closer to the 50 mark that separates growth from contraction.

Another rather disappointing survey adds to fears that the recovery continued to lose momentum at the start of the fourth quarter, said Chris Williamson at data provider Markit.

With manufacturing contracting, the October PMI surveys are signalling a heightened and substantial risk that the UK could slip back into recession. Any worsening of the PMIs in November or December would mean a contraction and this is likely, he added, saying fourth-quarter GDP could contract 0.1-0.2 percent.

On Tuesday PMI surveys showed Britain's manufacturing sector, once the bright spot in the country's lacklustre recovery, contracted at its fastest pace in more than two years in October as new orders plummeted.

Strong competition in the services sector, which accounts for around two-thirds of economic activity, forced firms to cut their fees for the first time since September 2010 -- the prices charged index fell to 48.6 last month from 50.0 -- even as input prices rose.

Inflation rose to a three-year high in September of 5.2 percent, well above the Bank of England's 2 percent target, but is seen easing over coming quarters.

Despite inflation so far above target the Bank has already launched a second round of quantitative easing, pumping an additional 75 billion pounds into the economy, and policymakers have warned the country risks slipping into another recession.

Data released on Tuesday showed the economy grew 0.5 percent last quarter, its strongest showing in two years, but economists see weaker growth ahead and gave a median one-in-three chance the country will head into another recession in the next 12 months.

Think tank NIESR said there was a near 50 percent chance of another recession and predicted growth of just 0.8 percent next year, much lower than the 1.3 percent predicted in a Reuters poll, in a report published earlier on Thursday.

The government has come under pressure to ease back on its austerity plans and instead introduce measures to boost growth.

But while Chancellor George Osborne acknowledged on Tuesday that the country faced a rough ride he reiterated his commitment to erase a record budget deficit of nearly 10 percent of GDP.


In further signs of trouble ahead service sector firms reduced their workforce last month, as did manufacturers, suggesting unemployment was set to rise above the 17-year high seen in the three months to August.

But despite the gloomy data service sector firms in the poll, which range from storage and communication businesses to hotels and restaurants, were at their most optimistic since May.

A welcome improvement in business confidence to the highest since May gives reason to believe that a double-dip recession is by no means a certainty, Williamson said.

Much will depend on whether business sentiment can hold up in the face of headwinds such as the ongoing financial crisis in Europe and deficit-fighting austerity measures in the home market.

The United States service sector is expected to have seen a bounce when figures are released later on Thursday but in the euro zone, one of Britain's major trading partners, data on Friday is seen showing the sector contracted for a third month.

European leaders announced a deal last week to help reduce Greece's huge debts, boost the region's bailout fund and strengthen banks but a shock call from Athens for a referendum stoked fears that the breakthrough would crumble.

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