Factories gloom puts big rate cut on the cards

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The news would appear to nail on a large interest rate cut when the Bank of England's monetary policy committee meets on Thursday - the only issue being whether the it cuts by a full percentage point or take Bank Rate down from 4.5% to 4%.

Data from the latest monthly CIPS manufacturing purchasing managers survey an unofficial yet keenly-eyed barometer of the British economy put the manufacturing sector at 41.5 in an index where anything under 50 shows industrial activity is contracting. It is the six consecutive month of contraction, chiming with the official definition of recession which is two trading quarters of economic downturn.

Economists said the October figure remains gloomy though it does show an uptick from 41.2 in September and is better than the consensus forecast of 40 for the month.

The figures also indicated a decline in inflationary pressures.

"Output and input prices fell sharply, suggesting the Bank has plenty of room to cut rates," said James Knightley of ING.

"An interest rate cut of 50 basis points to 4% seems the absolute bare minimum on Thursday," said Howard Archer of Global Insight.

The news came as the European Commission declared the Continent officially in recession and said the European economy will stagnate in 2009, its worst performance since 1993.