The pound plunged yesterday, with its overall value tumbling to its lowest for 13 years, as another spate of dire economic news left markets convinced that the Bank of England will order a further, drastic cut in interest rates today.

Expectations that the Bank’s Monetary Policy Committee will cut rates by another full percentage point, and perhaps even repeat last month’s aggressive 1.5 point reduction, leapt after a key survey suggested that the services sector, making up almost two-thirds of the economy, shrank at a record pace last month.

A further one-point drop in official base rates would take them to 2 per cent, a level last seen in 1951. A still more radical cut of 1.5 points, for a second month in a row, would leave the Bank in uncharted territory, pushing rates to their lowest in a history stretching back to 1694.

A rash of figures signalling that the economy is in the grip of a severe and accelerating slump has forced economists to amend forecasts of the MPC’s likely verdict today, and to predict that it is ready to take unprecedented action to stave off a recession worse than that of the early Nineties.

Almost two-thirds of City economists polled by Reuters this week are betting on a one-point rate cut today, amid warnings that the Bank could again wrong-foot markets with still more dramatic action.

“A one-point cut is now priced in across all markets. But there is a risk that the MPC will do more – and it would be very disappointing if they did less,” George Buckley, of Deutsche Bank, said.

Experts on The Times’ own MPC this morning reinforce pressure on the Bank to act boldly, with a call from a majority of the independent panel for a one-point cut.

Willem Buiter, a leading former member of the Bank’s rate-setting committee, called for it to go still further and cut interest rates to zero. “If zero is the floor, there’s no reason not to go there immediately,” he said.

In practice, most analysts expect the Bank to exercise greater caution, particularly as extreme rate cuts would leave it with no further ammunition to respond to grave economic news, while also piling pressure on the fragile pound, risking a sterling rout and a currency crisis.

Anxieties over the weakness of the pound were rekindled as it sank once again on foreign exchanges. The trade-weighted index of sterling’s overall value against a basket of currencies tumbled to 80.4, its lowest level since January 1996. The pound lost as much as 2.7 cents against the dollar, dropping to $1.4668. It has now fallen by more than 27 per cent against the dollar over the past 12 months, and by almost 20 per cent on the trade-weighted index.

Sterling is being battered as historic lows in UK interest rates, below those of the eurozone, reduce returns on cash deposited in Britain, cutting investor appetite for the currency. At the same time, markets are more fearful for the UK’s economic prospects.

Expectations of still deeper cuts in interest rates were heightened as the yield on gilt-edged government bonds plunged to record lows. Yields on benchmark ten-year gilts fell to 3.395 per cent, the lowest since records began 30 years ago, while those on two-year gilts fell to as little as 1.634 per cent.

Demands for the MPC to cut rates sharply were stoked by yesterday’s services survey, the gloomiest since it began in 1996. Scope for the Bank to cut rates was emphasised as the survey pointed to waning inflationary pressures, with services groups cutting prices for the first time in seven years.

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