European services industry records its slowest growth in over a year

Service industries in Europe are growing at their weakest pace in two years, after a jump in credit costs hurt banks. The decline follows a similar drop in manufacturing. Europeans'' confidence in the economy dropped to a 16-month low last month, according to a 28 September report.

The credit market slump has added to pressures on European companies already battling a record Euro and the highest crude oil prices ever. The economic slowdown may spell the end of almost two years of interest-rate increases by the European Central Bank (ECB), whose governing council meets on Thursday 4 October in Vienna.

The Royal Bank of Scotland Group Plc has said its services index fell to 54.2, the lowest since August 2005, from 58 in August. The index is based on a survey of purchasing managers by NTC Economics Ltd, and a reading above 50 indicates expansion. The figure is marginally higher than a 21 September estimate of 54.

This will mean that the ECB will probably leave key rates unchanged. Pressure to make a rate cut will rise over the next 12 months.

Deutsche Bank, Germany''s biggest bank, said last month it would curb hiring and write down the value of leveraged loans after suffering losses in the credit market. The interest rate on inter-bank loans jumped in August, after European lenders revealed losses in the US subprime mortgage market.

Services expansion in the UK was at its slowest pace in more than a year last month, a report by the Chartered Institute of Purchasing and Supply has shown.

Credit market losses have compounded the rising costs hitting the European economy. The price of oil has gained 30 per cent this year, touching a record $83.90 last month. On the other hand, the euro reached a record $1.4282, making European exports less competitive.