Activity in Britain's manufacturing sector has fallen for the sixth month in a row, putting further pressure on the Bank of England to cut interest rates on Thursday.

The Chartered Institute of Purchasing & Supply/Markit index revealed that activity hit 41.5 in October — a reading below 50 indicates that a sector is contracting.

While the score in October was slightly above City expectations, it shows that output is contracting at nearly the fastest rate in the 17-year history of the survey.

Last month the index hit an all-time low of 41.2.

Howard Archer, chief UK and European economist at Global Insight, said the survey strengthened the “already compelling” case for deep rate cuts from the Bank of England's Monetary Policy Committee (MPC).

Mr Archer, who said there was “a very strong case” for a full 1 per cent cut, which would take the UK interest rate down to 3.5 per cent, said: “The best thing that can be said about the survey is that it was not quite as dire as feared.”

The survey warned of growing weakness in export markets as gloom mounts over economies in the US, Europe and Asia.

New export orders came in at 43.5, which is the biggest decline since the aftermath of the terrorist attacks in America in September 2001.

A backlog of work among manufacturing also fell sharply, as manufacturers ate into existing workloads to cope with the fall-off in new orders.

Staff were also reduced as employers laid off workers in line with the lower production requirements, keeping the CIPS' employment index close to the record lows of the previous month.

Roy Ayliffe, CIPS director of professional practice, said: “Conditions for UK manufacturers remained brutal in October as the turmoil in the world’s financial markets showed no signs of abating.”

The only bright spot for manufacturing firms was cost inflation rising at its slowest pace for more than three years, reflecting sharp drops in the price of oil and other commodities.

It should ease any remaining fears over inflation from the MPC, which has a target inflation rate of 2 per cent. Inflation is currently at 5.2 per cent.

Ross Walker, an economist at the Royal Bank of Scotland, said: “Diminishing oil and commodity costs should continue to filter through to lower factory gate inflation.

“This, in turn, should provide reassurance for the MPC that consumer price inflation is likely to fall sharply ... allowing extensive policy easing.”

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