THE clamour for a further cut in interest rates has gained pace after new figures showed the economic slowdown was spreading across the UK.

The British Chambers of Commerce (BCC) said UK firms suffered their worst period of economic activity for more than two years, in the past quarter, with the manufacturing sector in particular on the brink of recession.

While manufacturers continued to suffer, the slowdown was now spreading to the previously untouched service sector, with growth and orders falling.

BCC director-general David Lennan said the figures showed the "shock waves" of the global slowdown were reaching further and deeper into the UK economy.

He said: "With manufacturing confidence draining away, the wings of the service sector clipped and price pressures on a downward trend, there exists both the scope and the need for a further cut in interest rates."

The BCC's survey covers the three months from April to June, weighing up sales figures and forecasts from more than 7,500 firms.

It said both the rate of growth in sales and orders across the service sector dropped to its lowest level since mid-1999, in the past quarter.

UK sales growth was measured at plus 26 over the past three months, compared with plus 31 in the previous quarter.

The balance of orders was down seven points to plus 19, from plus 26.

The balances are calculated by subtracting the number of companies reporting a decrease from those reporting an increase.

Transport, distribution and professional services were particularly hit, because of their close links to manufacturers.

Manufacturing continued to struggle throughout the country, with domestic sales and orders down on the previous quarter.

Home sales dropped from plus 11 to minus one, while orders tumbled from plus eight to minus five and the BCC said the outlook remained bleak.

A contraction in this quarter would mean the manufacturing sector was officially in recession, the BCC said.

It said confidence across the sector was plummeting and fewer firms were hopeful of making a profit, than was the case at the start of the year.

Mike Lenhoff, at City stockbroker Gerrard, said he doubted the figures would place any further pressure on the Bank of England.

The Bank's monetary policy committee kept interest rates on hold at 5.25 per cent last week, fearful a cut may fuel inflationary pressures.

Mr Lenhoff said: "The consumer sector is booming like billy-o, the housing market is growing, wages are on the up and employment is still being created.

"Why do they need to cut interest rates?"

He said the Bank would not move until other areas of the service sector, such as retail, were hit by the slowdown.

He said the BCC's survey showed firms in the service sector remained confident, despite the rate of sales and order growth slowing.

"There is nothing like the slide in confidence we are seeing in manufacturing.

"These firms are just going to have to ride it out, cut back on jobs and save costs."