London equities fell midway through last week, with fresh falls for leisure and retail stocks as the pace of growing concern about the outlook for the UK economy deepened.

The latest UK Services PMI index showed activity in Britain’s key services sector declined for the fourth successive month in August. And the news that Nationwide Building Society’s consumer confidence index remained mired at a series low added further to the gloomy economic scenario.

The FTSE 100 fell 111 points, or two per cent, to 5,509.3. The FTSE 250 was 1.8 per cent lower at 9,412.2, losing 131 points. Both indices reacted to more corporate news of significantly low consumer activity bringing the share prices in companies depended on consumer spending under further pressure.

Sterling continued its sharp decline as currency markets reacted to the worsening outlook for the UK economy. The pound fell to a 12-year low against a basket of currencies of the UK’s major trading partners. It also hit a renewed 2½-year low against the dollar at $1.7703.

The pound’s woes were compounded on Thursday as figures showed UK house prices fell at their fastest pace since 1991 in August, while UK retail sales plunged to their lowest level in 25 years.

The pound’s recent sharp fall is seen as good news for the future prospects of the UK’s exporters. But it is not expected to prevent the Monetary Policy Committee of the Bank of England from having to cut interest rates aggressively in response to the deep downturn in the housing market and domestic economy.

The Capital Economics Limited, a London based research firm expects interest rates to start to fall before the end of this year – perhaps as soon as November - and to fall to 3.5 per cent or even less in 2009.

However, according to more conservative economists the prospect of lower interest rates to stimulate the economy appeared a more distant prospect with publication of the British Retail consortium’s shop price deflator which showed prices rising a year-on-year rate of 3.8 per cent in August, even more rapidly than the level in July.

In another gloomy development UK employers indicated further job-shedding in August, with losses greatest in the hotels and restaurants sector. The employment index was 47.9, up slightly from 46.6 in July but below 50, indicating contraction.

Adding to the overall despondancy Alistair Darling, the Chancellor in an interview in Saturday’s Guardian newspaper said that the UK economy was passing through its worst phase in 60 years while admitting at the same time that he had been taken by surprise by the credit crunch and warned that the economic downturn would be more “profound and long-lasting” than most people had feared.

And perhaps realising the enormity of the situation and to revive the housing market whose collapse is believed to have played the biggest part in pushing the economy into a serious bout of recession, Prime Minister Gordon Brown on Tuesday announced a new £1 billion housing package. He said the package would give first-time buyers a leg-up onto the housing ladder, help homeowners in difficulty and support the UK’s housebuilding industry.

There will be a one-year stamp duty holiday for all properties sold for up to £175,000 - helping to restore market confidence and giving first-time buyers the extra help they need. And, alongside this, 10,000 more first-time buyers will benefit from a new £300 million shared equity scheme called, “Homebuy Direct”.

The PM also introduced a new £200 million mortgage rescue scheme to help thousands of vulnerable families threatened by repossession.

And to encourage social rented housing the PM brought forward £400 million of government spending to deliver up to 5500 new social rented homes over the next 18 months.

The annual increase in food prices jumped to 10 per cent in August, up from 9.5 in July and from 4.7 per cent in April. Non-food prices also rose in August, albeit at a slower pace. Paradoxically, with food prices showing a sustained rise for the first time in decades, the farming sector feels highly optimistic about its future.

Food price inflation in the UK is now around 14 per cent, according to government figures, reversing the trend of the last 50 years. In the 1960s, food made up nearly a quarter of the average household budget – by 2003, this had fallen to less than eight per cent.

But the rising trends in food prices are encouraging overseas investors, City buyers and even investment funds to buy agricultural land, sending its prices to record heights.The industry contributed £5.8 billion ($10.5billion, €7.1billion) to the UK’s economy in 2007, and rising food prices mean this contribution would rise even further.

However, farmers are still not very certain about their margins as fuel, one of the biggest input is becoming dearer, and the rise in diesel prices has been unbearable. Fertiliser and pesticides have also soared in price. It used to cost about £70 to produce a tonne of wheat but now it is nearer £120 a tonne.

Many farmers are still dependent on subsidies. British farmers will receive about £3 billion from the Common Agricultural Policy (CAP) this year.

However, because of UK’s subsidy reform, instead of receiving money for the quantity they produce, British farmers receive a payment based mainly on the amount of land they farm. Farmers are also said to be vulnerable because most make their money only a few times a year.