The Bank of England's decision on interest rates will be a close call this week as the credit crunch continues to take its toll on the economy, experts are forecasting.
Economists said rate setters could cut the cost of borrowing for the second consecutive month as data shows further signs of a slowdown in the housing market and wider economy.
Lending figures last week revealed that the number of mortgages approved for people moving home fell to a three-year low during November as just 83,000 new home loans were given the green light.
It marked the fifth month in a row that mortgage approvals for house purchase had fallen and added to mounting evidence that the housing market is going into reverse.
Expectations of another cut in interest rates were also fuelled after figures last week showed activity levels in the manufacturing sector eased in December.
The Chartered Institute of Purchasing and Supply (CIPS) said its purchasing managers' index fell to 52.9 last month, below the 53.6 expected by analysts.
Service sector confidence was also shown to be at its lowest level for six years according to another CIPS survey.
Howard Archer, chief economist at Global Insight, said it was "touch and go" as to whether the Monetary Policy Committee (MPC) will vote to cut rates by another quarter point to 5.25 per cent, with inflationary pressures making the decision difficult.
Oil touched $100 a barrel for the first time last week and petrol prices have in response been steadily rising to record highs, which will threaten to push inflation further above the Government's two per cent target.
Mr Archer said the MPC will be closing watching upcoming consumer confidence figures and data from the British Retail Consortium, due out tomorrow.
The BRC's December retail sales monitor will be one of the first surveys to give an encompassing snapshot of how the high street fared during December.
Footfall surveys showed the number of people visiting shops during the whole month was down compared to a year ago but there was evidence of a late rush of shoppers in the run-up to Christmas and a strong start to the sales.
"If consumer spending appears to have held up relatively well in December, it would increase scope for the MPC to remain on the sidelines for another month," said Mr Archer.
"But regardless, we expect the Bank of England to cut interest rates by a further 25 basis points to 5.25 per cent by February at the latest and we expect them to be down to 4.75 per cent by the third quarter."
Barclays Capital economist Simon Hayes is predicting a quarter-point cut on Thursday, followed by decreases in February and April.
Brewin Dolphin is also pencilling in a cut, but Investec Securities expert Philip Shaw believes the Bank will keep rates on hold.
Engineering bosses in the West Midlands have urged the MPC to cut rates.
Peter O'Grady, representation and strategic development manager for EEF West Midlands, said: "While manufacturing has been in good shape, it would not be able to escape the negative effects of a downturn in domestic and export markets.
"The Bank therefore needs to act quickly to offset the impact of deteriorating financial conditions on the UK economy."
The nine-strong MPC last month voted unanimously to cut rates to 5.5 per cent .