Growth in the UK's dominant service sector almost flatlined in April - slowing sharply to its weakest pace since the Iraq invasion month of March 2003 - raising serious questions over the momentum of the economy.

Howard Archer, chief UK economist at consultancy Global Insight, described yesterday's service sector survey from the Chartered Institute of Purchasing and Supply as "very worrying", coming as it does amid signs of significant deterioration in consumer confidence, the retail sector, the housing market, and in UK manufacturing.

However, CIPS' survey also showed service companies faced a record pace of increase in their costs again in April and continued to hike their prices on the back of this, albeit at a slightly reduced pace.

These latest danger signals on inflation may well still be enough to prevent the Bank of England's Monetary Policy Committee instigating back-to-back cuts in UK base rates at the end of its next two-day meeting tomorrow.

That said, the near-stalling of the service sector highlights the dilemma facing the nine-strong MPC and would appear likely to make tomorrow's vote much closer than had been expected before yesterday's survey.

CIPS said its seasonally-adjusted business activity index for services fell from 52.1 in March to 50.4 last month - barely above the level of 50 which separates expansion from contraction.

The April reading was the poorest since March 2003, and way behind the 51.6 number forecast by the City.

CIPS' survey showed particular weakness in the financial sector. The business-to-business and transport, storage and communications sub-sectors were also poor performers, but information technology and computing enjoyed a strong increase in new work.

The MPC has cut UK base rates by a quarter-point three times so far this cycle, in December, February, and April, to take them to 5%.

Most economists last week predicted a further quarter-point cut in June, with only a minority expecting the MPC to move as early as tomorrow.

The sickly picture of service sector growth painted yesterday points to a need for something to be done quickly to kick-start the economy.

MPC dove David Blanchflower warned only last week that the UK could follow the US into recession if more significant rate cuts were not implemented on this side of the Atlantic.

Yesterday's survey from CIPS indicates that even the European Commission might be too optimistic in its projection that UK growth will fall from 3% in 2007 to 1.7% this year. And the Commission is below the bottom end of Chancellor Alistair Darling's 1.75% to 2.25% forecast range.

The MPC has made it plain that it pays great attention to CIPS' service and manufacturing sector surveys, in determining the momentum of the economy.

However, the inflationary pressures which are writ large in CIPS' latest service sector survey mean the MPC may nevertheless consider its hands tied for this month at least.

CIPS' input prices index, which measures service companies' costs, rose from 66.2 in March to 67.3 last month. The April reading is the highest since comparable records began in 1996. The prices-charged index dipped from 56.2 in March to 55.2 in April but this signals service firms continue to push through big rises in their prices as they try to protect profit margins in the face of surging costs.

CIPS' monthly survey of manufacturing last week showed overall activity in this sector expanding at its second-weakest pace in the last two years but factory gate prices surging at the fastest rate since comparable records began in 1999.

A continuing surge in oil prices does not bode well for the inflation outlook - with US light crude leaping yesterday to fresh record highs above $122 a barrel. Surging food prices will be another concern for monetary policymakers.

CIPS' survey yesterday showed service companies' incoming new business increasing at its weakest pace in the current five-year expansion phase. Employment expanded at the slowest pace since February 2005.

Business expectations were at their weakest in April since October 2001 - the month after the terrorist attacks on the US.

And UK service companies' backlogs of work contracted at the fastest pace in five years in April.

Vicky Redwood, UK economist at Capital Economics, said yesterday's CIPS survey "gives a slight boost to the chances of another rate cut at this week's meeting".

She calculates a weighted average of CIPS' service, manufacturing, and construction sector surveys in April is consistent with quarterly growth in UK gross domestic product "of just 0.3% or so, a touch weaker than the 0.4% rate seen in Q1".

Redwood added: "A slowdown in the overall economy is therefore well under way - even before the full effects of the credit crunch or housing slowdown have been felt. The MPC probably still sees the upside risks to inflation as severe enough to pause at least a month before cutting again, but the decision is perhaps now a bit less clear-cut than it previously seemed."

Archer said CIPS' service sector survey adds "to the mounting concerns over the economy".

He added: "This is a very worrying survey. Following on from recent weaker data and surveys relating to consumer confidence, retail sales, the housing market and manufacturing activity, essentially stagnant service sector activity in April puts serious pressure on the Bank of England to cut interest rates again on Thursday despite current elevated inflation concerns.

"It now looks an extremely close call and, while we suspect that a majority of MPC members will still be reluctant to enact back-to back interest rate cuts at this stage, the odds are stacked in favour of interest rates being down to 4.75% by June."

He believed the MPC would be "modestly relieved to see that the prices-charged index eased back for a second successive month in April, suggesting that softening activity is starting to dilute companies' pricing power".

However, he added: "The prices-charged index was still uncomfortably high while the input prices index was at a record high, thereby maintaining pressure on service companies to try to raise their charges."

Archer expects UK base rates to fall to 4% by the end of 2008 and to 3.75% in the first quarter of next year.