The Bank of England is under pressure to cut interest rates after new figures revealed softer services activity and a sharp fall in manufacturing output.

Economists believe the latest data has increased the chances that the Bank's Monetary Policy Committee will cut rates to 5.5% from 5.75% on Thursday.

The biggest surprise came after the Chartered Institute of Purchasing & Supply said October saw the weakest rate of service sector growth since May 2003.

The study also found a greater reluctance among businesses to commit to new spending, while worries over the crisis in financial markets has left optimism at its lowest for more than a year.

Meanwhile, the Office for National Statistics said manufacturing output dropped by 0.6% between August and September.

This is higher than the City had expected, and leaves the sector's growth in the third quarter of 2007 unchanged on the previous three months.

Despite falls in confidence and tighter credit conditions, the Bank of England had been expected to wait until next year before cutting interest rates.

But Malcolm Barr, an economist at JP Morgan, said the figures show a "rapid loss in momentum".

He added: "The recent mood music from the MPC suggests to us that this will not be enough to generate a cut from the MPC this week, but the decline puts a move back on the table as a realistic prospect."

However, shoppers are still hitting the high street after a surprise jump in retail sales during September, according to the ONS.

And figures from the Nationwide Building Society showed a shock 1.1% rise in house prices during October.

David Page, an economist at Investec Securities, said: "The MPC is in an uncomfortable position on Thursday. Trusted forward-looking indicators are urging for looser monetary policy, but signs of significant slowing are absent from official data.

"Yet the threat of inflation feels ever present and the Bank would certainly not do anything that risked unhinging inflation expectations.

"The only certainty is that the Bank's decision on Thursday is likely to be a close-run thing."

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