There are growing signs that the economy in the UK is flagging as a consequence to last year’s rate rises and the global credit crunch. Business and consumer confidence have fallen sharply, while the housing market is still stagnating.

According to a survey from the Chartered Institute of Purchasing and Supply, business confidence in the country’s once-booming services sector tumbled last month to its lowest in more than six years. While overall growth activity remained weak but steady, the financial services sector in particular experienced the effects of the chaos in financial markets in the last six months.

It appears unlikely that growth will recover all of the ground lost back in a hurry.The survey showed price pressures persisting in the sector. The Halifax (Leading Housing monitor) reported that house prices were static last month after a strong rise in December. It said the annual pace of increase had dropped to 4.5 from 5.2 per cent the month before.

Meanwhile, the VocaLink take-home pay index fell to its lowest level of growth in two years in January, at 2.8 per cent. This suggests more poor trading ahead as individuals’ take-home pay continues to be stretched across mortgages, fuel and other essentials. The monthly RECS/KPMG recruitment survey showed demand for staff rose at its slowest pace for 26 months.

And as the service sector in eurozone has also slumped British firms that do business with the zone have very little to look for on the export front. The French economy continued to perform strongly but German service sector activity contracted for the first time since July 2003 and Italy suffered the second monthly decline in a row.Other data showed retail sales in the zone fell by two per cent year-on-year in January. Eurozone growth is in trouble and the risk of recession at some stage is being predicted.

But what has caused all this trouble? The answers to this question are many and some are highly complex. But the role played by the credit-rating agencies in pushing the world economy into current turmoil is being described as simply devastating. Some call these agencies as important villains in the unfolding credit crisis.It were these highly regarded credit rating agencies like the Standard&Poor’s and Moody’s which lured unspecting investors into sinking their borrowings in the ever-growing exotic financiual instruments carrying gold-plated triple-A credit ratings making them appear as safe as government bonds.

But when the chips fell these ratings turned out to be based on nothing more than the fancy of the managers of these credit rating agencies. And shocked investors who thought they had rock-solid portfolios found themselves sitting on giant losses. In the process more than $100 billion (£50 billion) of value has been wiped out because of the mushrooming numbers of defaults.

The rating agencies were particularly incompetent in measuring the risk of collateralised debt obligation (CDOs) and generally they were very, very wrong in assessing the creditworthiness of exotic mortgage-related bonds and other credit derivatives.

Admitting to its failure another rating agency Fitch announced recently that it was introducing a “new methodology” for predicting the likelihood of a default by CDOs that contain parcels of corporate debt. Indepdenent experts believe the change of view could result in downgrades to every single one of the $220 billion worth of CDOs that this agency rates. And that would be in addition to the $67 billion of mortgage-related CDOs that it downgraded in November, when many triple-A rated bonds were cut in a single move down to junk status.

Moody’s has also come up with a number of reforms proposals to give investors more information, both about the bond they are buying and about the way the agency came up with its credit rating. Warnings could include a volatility rating, signalling how likely it was that the creditworthiness of the bond could be revised down, or even a quality indicator to reflect the quality and the complexity of the data underlying Moody’s assumptions.

At the height of the credit crunch last summer, both houses of Congress started asking probing questions about the workings of the agencies. Executives were summoned before the Senate banking committee in September and forced to defend themselves against charges that the agencies gave rankings according to the amount of fee they received from the beneficiary banks,investment institutions or the funds. And also that their services were infected with conflicts of interests.

This week, at a meeting in Amsterdam, the International Organisation of Securities Commissions is discussing a co-ordinated regulatory response to the rating agencies’ failings, while the European Union and the US Securities and Exchange Commission are pursuing parallel inquiries.

Tailpiece: What is former Pakistan prime minister Shaukat Aziz doing lunching with British billionaire and TV investment advisor James Caan at one of the swankiest London restaurants?

He and Caan were spotted at the restaurant on Monday by a Daily Telegraph columnist. Shaukat was not available for comment. But the columnist in his gossipy write-up on Wednesday hinted that the two were perhaps negotiating a £100 million investment fund which will acquire commercial property using Sharia-compliant finance.

Interestingly, James Caan is one of the five dragons in the BBCTV2’s Dragons’ Den programme in which entrepreneurs ( contestants) looking for investors are interviewed and winners are given the amount they asked for before the programme in return for a percentage of company’s stock to the dragons.

It is not known if that was the game being played between Shaukat ( as a contestant) and Caan (as a dragon) over lunch. And it is also not known whether Shaukat won or lost the contest.

James Caan, as the story goes, began in business working out of a room the size of a shoebox on Pall Mall and has been creating, building, and selling businesses for over 20 years.

In 1985, he set up the Alexander Mann Group, one of the UK’s leading HR outsourcing companies, and achieved a turnover of £130 million before selling it to a private equity firm in 2002.

He also co-founded an executive headhunting firm with partner Doug Bougie, which they successfully expanded globally through its Humana International brand, growing to over 147 offices across 30 countries before it was bought by a New York-listed company.