Pressure mounted yesterday on the Bank of England and the European Central Bank to deliver drastic cuts in interest rates this week as a worldwide slump in manufacturing sent shares plunging again on both sides of the Atlantic.

Expectations leapt that the Bank of England would order another aggressive rate cut of up to a full percentage point on Thursday after a key survey suggested that Britain's frail manufacturing shrank last month at the fastest pace in almost two decades.

Still more dire news from industry in the United States and the eurozone, with evidence that American manufacturing activity is plummeting at the sharpest pace in 26 years, reignited fears of global recession, sparking another sell-off across stock markets.

In London, the FTSE 100 index sank by 222.5 points, or 5.2 per cent, to close at 4,065.5. Shares also tumbled across Europe and in New York. The Dax in Germany shed 5.9 per cent and the CAC 40 in France lost 5.6 per cent. On Wall Street the Dow Jones industrial average closed down 679.95 points, or 7.7 per cent, at 8,149.09.

Investors' flight out of shares for the safe havens of government securities sent prices for US Treasury bonds and British gilt-edged stock soaring, driving their yields to historic lows. Benchmark yields on ten-year US Treasury bills fell to 50-year lows of 2.85 per cent. Yields on ten-year gilts hit 30-year lows of 3.67 per cent.

The pound also succumbed to a renewed battering as fears of a prolonged economic slump in Britain combined with markets' betting on a big interest rate cut this week. Sterling suffered its sharpest one-day fall against the dollar since 1992, dropping by more than 5 per cent to $1.4839.

Alarm over Britain's prospects was inflamed by the latest CIPS/Markit survey of manufacturing. Its headline gauge of industrial activity fell to its lowest since January 1992 and pointed to industry's output and orders falling at the fastest pace since then, in turn triggering sweeping jobs cuts.

Concern that even another big interest rate cut may not be enough to ward off a long recession was stoked by Bank of England figures showing that the squeeze on lending by banks is intensifying. New mortgage approvals in October set record lows, with just 32,000 home loans worth only £3.9billion agreed. Overall lending to individuals also rose in the month at a meagre annual rate of just 5.3 per cent, the weakest since October 1993.

In America, an Institute of Supply Management survey suggested that the plight of US industry is the worst since the recession of the early 1980s, while the American economy was formally declared to be in recession. In the eurozone, a purchasing managers' survey of manufacturing reported the weakest activity for at least a decade.

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