A full 1% cut in the Bank of England interest rate to a historic low of 2% is widely expected as the economic meltdown continues.

Employment, new orders and current activity are now all at record lows, according to the latest survey by the Chartered Institute of Purchasing and Supply (CIPS).

Manufacturing and construction data also show all-time activity lows in November, while the beleaguered service sector shrank at its fastest rate for 12 years.

While the Bank's rate-setters are predicted to deliver at least another 0.5% cut, experts say the case has been reinforced for 1% reduction despite last week's pre-Budget-report stimulus package.

Philip Shaw, economist at Investec Securities, has upped his cut prediction to 1% following this week's dire news.

He said: "We had previously judged that a 0.5% easing, together with the substantial tax cuts in last week's Pre-Budget Report, would bring the MPC's inflation forecasts into line with the 2% target in the medium-term. But this week's economic news has been very poor."

He added there was even a "real chance" of a repeat of last month's 1.5% cut, although he pointed out this would leave the Bank with little ammunition to help the economy further.

The MPC surprised markets last month by slashing the base rate by 1.5% to 3%. It will now have to consider if the 2.5% cut in VAT and other measures outlined by Alistair Darling will be enough to encourage consumers to shop and boost the flagging economy.

Business body the CBI said it is critical that any cuts would be passed on by banks to consumers and businesses.

John Cridland, CBI deputy director-general, said: "The CBI believes that the Bank will need to cut interest rates by 1.5% during the winter months.

"What is critical for business and consumers alike is that the reductions are passed on. The cut will need to be at least half a point but more important than the size of the cut will be its effectiveness."

There are fears that many customers with mortgages tracking the base rate will not benefit from any hefty cut, due to clauses in their loans.

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