The uk economy is growing at its most sluggish rate for more than a decade as consumer confidence ebbs and spending slows.
Expectations of an interest rate grew after the Office for National Statistics (ONS) said yesterday that the UK's gross domestic product (GDP) had grown only 0.4% from April to June - the same rate as the previous quarter but behind analysts' forecasts of 0.5%.
This means the economy grew 1.7% in a year, the weakest annual performance since the first quarter of 1993. It and will increase scepticism among economists that Chancellor Gordon Brown will hit his target of at least 3% economic growth this year.
BNP Paribas economist Alan Clarke said: "If there were any doubts that the UK economy has turned for the worst, then the second-quarter GDP data should clear that up."
Problems facing the UK economy include the rapid rise of oil prices, which has pushed up costs at a time when companies are having to hold prices to remain competitive against cheap imports.
But the world's fourth-largest economy is still ahead of the rest of Europe. Economists expect the 12-nation eurozone to show a 0.2% expansion when data is published next month. In contrast, China's economy grew nearly 10% year-on-year in the first half of 2005.
The ONS figures also show that manufacturing has fallen into recession after output contracted 0.7% in the second quarter, on top of a 0.9% decline in the previous three months.
Output for service industries was estimated by the ONS to have risen 0.6% - down on the increase of 0.7% seen in the first quarter.
A survey by the British Chambers of Commerce earlier this month pointed to a sharp deterioration in conditions in the service sector, which has helped shore up the economy in recent months.
The BCC said confidence among firms in services about future profitability was at its lowest since the first quarter of 2003, while all other key indicators such as employment were pointing to a slowdown. It believes economic growth this year could be at least a third lower than forecast by the Chancellor.
Investec economist Philip Shaw said the data was worse than expected and prompted a 0.1% cut in his forecasts for economic growth this year to just 1.9%.
For next year he predicted expansion of 2% - down from his earlier forecast of 2.1%.
HSBC economist John Butler said the figures supported a cut in interest rates next month but he added: "Does an August cut open the door to more aggressive moves this year?
"The recent more upbeat data on retail sales, household borrowing and the probable delay in the timing of tax hikes suggest that the Monetary Policy Committee may cut and then wait and see."
Senior economist of the Centre for Economics and Business Research Angus McCrone said: "The implications of today's figures will be to increase still further the odds on a quarter-point interest-rate cut in August."