Oil prices plunged to $50 a barrel today on gathering concerns the global economic slowdown and the perilous state of the US car industry are driving down demand for crude.

In London, Brent North Sea crude fell $1.77 to $50.60 following heavy declines earlier in the week. While overnight in Asia, prices for New York oil fell to near $55 a barrel. Oil is now trading 66 per cent below the $147.27 peak reached in July.

Stephen Roach, chairman of Morgan Stanley Asia in Singapore, said: “As the global economy continues to weaken, we’re going to see further downward pressure on oil. I think we’ll certainly challenge the $50 threshold. We could challenge the $40 threshold.”

However, the fall follows a report from the International Energy Agency, released yesterday, which said that the world's existing oil producers faced “huge challenge” to keep up with a projected rise in global demand.

The report from the IEA, the respected Paris-based energy advisor to the Organisation for Economic Co-operation and Development (OECD), said that to compensate for the depletion of existing oilfields, by 2030 the world would need to find new production equivalent to 45 million barrels per day, or the output of four Saudi Arabias, to maintain present levels of supply.

The IEA, which based its findings on a landmark study of decline rates at 800 of the world's largest oilfields, said that there was, in theory, enough oil left in the ground to meet demand. However, it would require investment of about $450 billion (£300 billion) a year, with the bulk of this spent in the 13 member states of Opec, where most of the world's remaining supplies lie.

Last month, Chancellor Alistair Darling increased pressure on major oil companies to pass on the falling price of crude after BP and Shell reported record quarterly profits.

In contrast, since oil prices have started to fall, Britain's major supermarkets have cut the cost of petrol on their forecourts.

The falling price of oil will contribute the declining UK inflation which is expected to shrink from its current 16-year peak of 5.2 per cent. However, Mervyn King, Governor of the Bank of England yesterday cautioned that the UK could be heading for a period of deflation.

Mr King was speaking as he revealed the Bank's quarterly Inflation Report, which continued to impact the value of the pound.

Sterling sank further after reaching a record low against the euro and a six and a half year low against the dollar. It opened today at $1.4864, having yesterday fallen below $1.50 for the first time since 2002.

Mr King said the Bank was prepared to cut rates even further after its shock 1.5 percentage-point cut last week. He said that the British economy is facing its toughest challenge in nearly 30 years.

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