Britain's service companies, which make up 60 per cent of the UK economy, were battered in October as consumers reined in their spending amid the looming recession.

The CIPS/Markit report on services, which gauges activity in companies ranging from accountants and banks to cafes and hotels, shows that current activity, new business orders and employment all fell to record lows last month.

The dismal figures will put the Bank of England under more pressure to make a significant cut in interest rates tomorrow.

The Bank's Monetary Policy Committee is embarking on the first day of its two-day meeting today to decide whether to make a half-point cut to borrowing costs, as widely expected, to make a steeper full-point reduction.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "These figures heighten already very serious concerns about the potential length and depth of the UK recession and intensify pressure on the Bank of England to deliver a deep cut in interest rates on Thursday."

The headline index of business activity in the services sector fell to 42.4 — the lowest reading since the series began 12 years ago. Any figure below 50 indicates that the sector is contracting, rather than growing.

A fifth of companies also reported that they had reduced staffing levels, pushing the employment index to a record low of 45.7, compounding fears that unemployment is set to soar over the next year.

A separate report this morning showed that the number of people being hired by companies fell for the seventh month in a row in October.

The CIPs survey also revealed that deteriorating consumer confidence drove down new business orders at the sharpest pace on record. The new business index fell to 40.1 in October — the sixth month under 50.

Fears that the recession could be more severe and longer than forecast were heightened as businesses expectations of future conditions fell to a record low.

Over a third of businesses surveyed said that activity was set to be lower than present levels in six months' time, driving the expectations index down to 50.8 from 58.2 in September.

Roy Ayliffe, director of professional practice at the Chartered Institute of Purchasing and Supply (CIPS), said: “It’s increasingly clear that firms are battening down the hatches and preparing for a long and hard-hitting recession.

“Though inflation was curbed slightly, the sector saw little relief as energy, utility and insurance bills continued to grow. The final sting in the tail for struggling firms was the rise in the minimum wage, which came into effect last month.”

The only bright spot in the dismal figures was an easing of input prices, thanks to the falling cost of oil. The average input price index was 58.1, the lowest level in more than a year.

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