Dec. 3 (Bloomberg) -- U.K. services from banks to recruiters contracted at the fastest pace in at least 12 years in November, and consumer confidence dropped, bolstering the case for the Bank of England to cut interest rates tomorrow.

An index based on a survey of about 700 service companies fell to 40.1, the lowest since the gauge began in 1996, Markit and the Chartered Institute of Purchasing and Supply said today. Nationwide Building Society said that consumer confidence fell to the lowest since at least 2004.

Manufacturing and construction surveys also showed the fastest contraction on record in November, signaling that the recession has intensified. The Bank of England may respond by cutting the benchmark interest rate tomorrow by one percentage point to the lowest level since 1951, economists say.

“We’re seeing a very sharp contraction in the U.K. economy,” said David Page, an economist at Investec Securities in London. “There’s a real risk that the Bank of England will go to effectively zero, perhaps around half a percent in interest rate terms.”

Investec changed its forecast after the release of the services data to predict a full percentage-point cut instead of only a half-point reduction from the current 3 percent.

The pound fell against the dollar and the euro today and traded at $1.4701 and 86 pence per euro as of 10:07 a.m. in London. The currency has dropped 26 percent against the dollar so far this year.

Services Shrink

The CIPS report today excludes retailers, which together with other services industries makes up about three quarters of the economy, compared with 20 percent for manufacturing and construction together. The index was lower than the 41.2 median prediction of 33 economists in a Bloomberg survey.

Nationwide, the nation’s second-biggest mortgage lender, said that its consumer confidence index dropped 6 points to 50 in November, the lowest since its survey of British shoppers started in May 2004.

Royal Bank of Scotland Group Plc scrapped its full-year profit forecast on Nov. 4 as credit losses worsened and bad loans rose. Shareholders have ceded control of the company to the British government as part of Prime Minister Gordon Brown’s plan to shore up the British banking system.

An index of permanent staff placements by recruitment companies fell to the lowest since at least 1997 in November, the Recruitment & Employment Confederation and Markit said in a report today.

Economy Contracts

CIPS surveys earlier this week showed manufacturing contracted at the fastest pace in at least 16 years, while construction shrank the most since at least 1997. U.K. economic growth contracted 0.5 percent in the third quarter after stalling in the previous three months.

Chancellor of the Exchequer Alistair Darling on Nov. 24 proposed the nation’s biggest fiscal stimulus in two decades to stem the economic slump and revive bank lending. Queen Elizabeth II may unveil further plans today as she presents the government’s annual legislative agenda in Parliament.

Bank of England policy makers reduced the benchmark by 1.5 percentage points last month to the lowest level since 1955. The Bank of England will cut it by a further one percentage point tomorrow, according to the median forecast of 60 economists in a Bloomberg News survey.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: December 3, 2008 05:23 EST