Dire economic data fuel rate cut bets

By David Milliken and Christina Fincher

LONDON (Reuters) - Manufacturing shrank at a record pace in November and mortgage approvals slid back to a series low in October, showing that neither a weaker pound nor lower interest rates have stalled a slide into recession.

The gloomy manufacturing data from purchasing managers could push the Bank of England towards a one percentage point rate cut on Thursday, and the fall in mortgage approvals is likely to increase government pressure on banks to restart lending.

Ten-year gilt yields fell to their lowest since records began 30 years ago after the data and sterling dropped over a cent against the dollar, as the scale of the decline in manufacturing and home lending shocked markets.

The headline manufacturing PMI number from Markit/CIPS fell to 34.4 from October's 41.5, far below markets' expectation of a drop to 40.0 and the worst reading since the survey started in January 1992, after new orders, output and employment collapsed.

"Today's data has intensified worries about the potential depth of the recession and has boosted the chances that the Bank of England will cut Bank rate by at least 100 basis points on Thursday," said economist James Knightley from Dutch bank ING.

The number of mortgages approved in October fell to 32,000 from 33,000 in September, matching August's 32,000, the lowest number since the Bank data started in January 1999.

While this decline was in line with market expectations, the slide in money lent was not, with mortgage lending falling to 459 million pounds from 1.492 billion a month earlier and over 8 billion pounds in October last year.

House prices have fallen 8.1 percent in the year to November, property analysts Hometrack said in their monthly survey on Monday, though data from big mortgage lenders points to national falls of as much as 15 percent.