The slump in manufacturing could cut British economic growth to just half of Chancellor Gordon Brown's forecast.

That was the stark picture painted yesterday by the British Chambers of Commerce, which added its voice to calls for a further cut in interest rates.

And on a day that saw the FTSE 100 blue chip shares index close 77 points lower at 5265.2, the latest recruit to the Bank of England's rate-setting Monetary Policy Committee added to concerns that the UK is in economic retreat.

David Walton told a Parliamentary select committee that the slowdown in consumer spending looks set to continue.

The BCC said its latest quarterly economic survey had revealed "alarming" manufacturing figures and a fall in confidence between July and September.

The results highlighted "acute threats" to business and underlined the need for a cut in interest rates.

The BCC warned that it may be forced to reduce its forecast of economic growth for the year to as low as 1.6 per cent - well below Gordon Brown's budget forecast of between three per cent and 3.5 per cent.

Such a figure would also be lower than the 1.9 per cent forecast by the International Monetary Fund in Washington last month, where the Chancellor indicated economic growth would not be as strong as he had previously predicted. David Kern, economic adviser to the BCC, said: "Economic growth is bound to be below two per cent. At best it will be 1.8 per cent and at worst 1.6 per cent.

"It has become clear that Gordon Brown's budget forecasts are no longer in the realms of possibility."

The BCC called on the Government to "ease the oppressive regulatory burden on businesses" and rule out additional taxes.

Director general David Frost said that the MPC should "consider a cut in the near future".

The BCC survey found there had been a "sharp decline" in the manufacturing sector, which was in recession after negative growth in the first two quarters of the year.

The barometer for measuring home sales fell from plus-19 per cent in the second quarter to just plusthree per cent in the third, its lowest level for two years.

The barometer for home orders fell more sharply and moved into negative territory, from plus-18 per cent to minus-three per cent, its lowest level since the last quarter of 2001.

The figures for exports in manufacturing also fell, by three points to plus-14 per cent, its lowest level for 12 months.

The survey found that the performance of the service sector, which has helped to prop up the UK economy as manufacturing declined, was also disappointing.

"The figures signal worsening threats for UK businesses, at a time when we had reason to expect a gradual improvement in the economy, after the sharp slowdown seen in the first half of the year," Mr Frost said.

Questioned by the Treasury Select Committee, Mr Walton, who voted for a rate cut in August, said: "A further period of subdued consumption growth seems quite likely.

"Oil is a big uncertainty for the outlook for both growth and inflation."