Pressure is mounting on the Bank of England to cut interest rates by a further half point to protect the UK economy.

The monetary policy committee, which begins a two-day interest rate setting meeting on Wednesday, is predicted to order a half point cut following the latest bleak economic news.

More bad news from the manufacturing sector, falling inflation in the euro zone and a worsening US economy are likely to be key factors in the decision.

Rates stand at 4.5 per cent after a quarter per cent cut in October which followed an emergency cut by the same amount on September 18 in response to the tragic events in America.

The US Federal Reserve is expected today to cut a key interest rate for the tenth time this year in an effort to cushion the economic blow from the terrorist attacks. President Bush was forced to admit earlier this week that rising unemployment and plunging consumer confidence was "bad news".

The US cut is expected to be half a point on overnight loans bringing rates to 2.5 per cent - the lowest level since May 1962.

The British Chamber of Commerce reported yesterday showing the manufacturing sector had suffered its worst month since my 1992. It was also announced that euro inflation fell from 3.4 per cent in May to 2.4 per cent in September.

Both the CBI and the TUC have called for a further cut in rates to stimulate the manufacturing sector.

The UK housing market - a major economic indicator - is also likely to convince the committee that another rate cut is necessary.

Simon Rubinsohn, chief economist at stockbroker Gerrard, said house prices are likely to cool after several years of high rises.

"We expect the recent downturn in turnover to increasingly be reflected in price weakness, particularly in London and the South East. Rising unemployment, on the back of the daily diet of redundancy announcements, is the likely trigger for a modest fall in prices," he said.

David Bitner of Bradford and Bingley, gave a similar assessment. "I think prices have come off the boil. People have for the last three to four years achieved asking price for properties. Now what we have seen is a general slowdown in buyers in the market and properties increasing, and this has caused people to be able to barter, and people are willing to accept offers below the asking price.''

Digby Jones, CBI director general, said the impact on the terrorist attacks in the US had worsened an already slowing global economy and called on the committee to make a rate cut.

"September 11 was a body blow to business, which will lengthen and deepen the global slowdown. The situation is highly uncertain and much will depend on policy makers. We need another cut in interest rates and a prudent plan for the Budget. This is a real test of whether we can avoid the boom and bust of the past.

"A further rate cut on Thursday would shore up business and consumer confidence at a time when there is no danger from inflation. The seriousness of the downturn merits a half-point reduction rather than a more cautious quarter," said Jones.

TUC general secretary John Monks called on chancellor Gordon Brown to make major concessions to industry in his Budget .

"It's time to throw a lifeline to our exporters with a bigger cut in interest rates this week, giving us an economic shot in the arm and insulating us from the threat of global recession.

"Crucially, a rate cut this week needs to be followed up by a 'pre-Budget for jobs' from the chancellor. The centrepiece of this needs to be increased industrial and regional aid and labour market programmes that help our hardest hit sectors and communities. We also need a commitment to continue investment plans and carry over the under-spend of government departments," said Monks.

The Institute of Directors also backed calls for a cut in rates.

Ruth Lea, head of the policy unit at the IoD, said: "We believe that the economy is still slowing, despite the seemingly buoyant retail sales and better-than-expected third quarter GDP data".

"The US will almost inevitably enter recession, Euroland's economic confidence is still faltering and Japan seems to be mired in recession. These external circumstances can only damage British economic prospects. The Bank of England should cut interest rates this week - by at least 0.25 per cent to 4.25 per cent," Lea added.