The threat of a deep and prolonged recession mounted yesterday as bleak figures showed services industries shrinking at a record rate and manufacturing suffering its longest stretch of falling output since 1980.

Expectations that the Bank of England could take drastic action today to fend off the danger of an economic slump with a big cut in interest rates rose after the dire news indicating that recession is tightening its grip on Britain.

Most City economists expect the Bank's Monetary Policy Committee to cut rates by at least a half-point but pressure for a bolder move was ratcheted up by the latest grave figures showing rapidly deteriorating economic conditions.

The services sector, which accounts for more than half the economy, shrank last month at its fastest pace for at least 12 years, the latest purchasing managers' survey of its conditions from CIPS/Markit revealed. Its headline index of services activity plummeted to 42.4 last month, on a scale where any figure under 50 indicates contraction.

The inflow of new business into services companies, amounts of business outstanding, expectations of future conditions and employment intentions in the sector all plunged. Conditions in the financial industries and for hotels and restaurants were particularly grim, the survey suggested.

The plight of the battered manufacturing sector also deepened, with official figures showing that its output tumbled by a worse than expected 0.8 per cent in September, leaving it 3.1 per cent down from a peak in February. The latest drop in manufacturing output was the seventh consecutive monthly fall and marked the longest consecutive run of declines for 28 years.

Economists said that the weakness of yesterday's data suggested that the economy was probably shrinking at least as fast, and probably faster, than the 0.5 per cent pace of decline officially estimated for the past quarter.

George Buckley, of Deutsche Bank, said: “The escalation of the economic slowdown justifies, in our view, a full percentage point off interest rates.” His call is echoed this morning by The Times Monetary Policy Committee of independent experts.

Concern over the toll from the downturn was magnified as PricewaterhouseCoopers, the accounting group, reported that the numbers of businesses going bust in the past quarter soared by 40 per cent from a year earlier to 4,039. PwC said that insolvencies were rising fastest in the property and hotels and restaurants sectors, and in the West Midlands, Yorkshire and North Lincolnshire.

Anxieties over the looming danger of global recession were further inflamed by alarmingly weak surveys of the services sector in the United States and the eurozone, with conditions in both the worst for at least a decade. The German Government approved a €50 billion (£41 billion) package of corporate tax breaks, aid for small companies and infrastructure projects to try to shore up Europe's biggest economy. Other figures showed American businesses making the deepest job cuts for six years and plans for more layoffs at the highest for almost five years.

In the Commons, the Prime Minister clashed with David Cameron, the Conservative leader, over whether Britain was more exposed to the global downturn than its rivals. Mr Cameron highlighted European Commission forecasts that Britain was to suffer a sharper downturn than other big EU economies. “You cannot hide from this. If we are better prepared, why is our recession forecast to be deeper?” he asked Gordon Brown.

The Prime Minister replied: “The reason why we are better prepared is that for years we have had low interest rates, we are now getting inflation down. We have high levels of employment and we can come through this.”

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