Building and bank woes fuel calls for another big rate cut

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The Bank of England was urged to reduce rates by at least one percentage point from 3% to 2% on Thursday, with some experts arguing the case for an even bigger move.

It followed shocking figures from the construction sector and ongoing concerns that the low level of bank lending is starving the economy and forcing companies out of business.

Adam Lent, head of economics at the TUC, said: "With unemployment rising rapidly and inflation falling, the time for incremental cuts is over.

"The Bank must bring interest rates down to a level that will help prevent a slump in 2009. However, there will then be an obligation on the Government to take rapid action and encourage the banks to start lending again.

"Otherwise, even a bold cut will prove meaningless as bankruptcy and redundancy spreads."

The FTSE 100 index was up 42.06 points at 4107.55, having opened below 4000 following last night's 8% slump on Wall Street. Sterling staged a slight recovery against the dollar, up 0.52 cents to $1.4922. The pound has fallen more than 25% against the greenback in the past four months. Willem Buiter, a professor at the London School of Economics and former member of the Bank of England monetary policy committee, said the Bank should run the risk of further weakening the pound and cut rates to 1.5% this week.

"The risk is that it could become a rout," he said. "I still expect them to cut rates by 150 basis points on Thursday."

A survey by the Chartered Institute of Purchasing & Supply showed the construction industry in recession for a ninth month in a row in November.

Its barometer of activity, where 50 marks the cut-off between boom and bust, fell to 31.8, the lowest level since records began in 1997.