Jan. 9 (Bloomberg) -- U.K. manufacturing plunged in November, extending its longest streak of declines since 1980, and factories raised prices at the slowest pace in a year as Britain’s recession worsened.

Output dropped 2.9 percent in November, matching the biggest drop since 2002, the Office for National Statistics said today in London. Economists predicted a decline of 0.6 percent, according to the median of 20 forecasts in a Bloomberg News survey. A separate report showed producer prices rose 4.7 percent in December from a year earlier.

The Bank of England cut the benchmark interest rate yesterday to 1.5 percent, the lowest in its history, to stave off the threat of deflation as world economies slump. Policy makers forecast a “sharp slowdown” in U.K. economic growth as banks restrict the availability of credit.

“This provides concrete evidence that activity is grinding to a halt in the U.K.,” said Alan Clarke, an economist at BNP Paribas in London. “There’s a risk of another big move in rates if there’s enough shocking data like this.”

Factory-gate prices were unchanged in December from a month earlier, the statistics office said. Economists predicted a decline of 0.6 percent from November, according to the median of 14 forecasts in a Bloomberg News survey.

Manufacturing, which accounts for 14 percent of the economy, fell for a ninth month. It dropped 3.3 percent in the quarter through November from the previous three months, also the biggest drop since 1980, the report showed.

Twelve out of 13 categories of factory production dropped on the month, led by chemicals and man-made fibers, transport equipment and basic metals, the statistics office said.

Profit Weakness

London-based DS Smith Plc, owner of the Spicers office products band, said Dec. 3 weaker demand across all its trading partners pushed first-half profit lower and limited its ability to charge customers more.

Producer prices didn’t fall on the month because lower gasoline costs were offset by higher tobacco and alcohol product prices, the statistics office said.

Manufacturing has so far struggled to benefit from the weakness of the pound. The U.K. currency last year lost around a quarter of its value against the dollar and the euro, the currency of Britain’s biggest trading partner.

The International Monetary Fund forecasts recessions next year in the U.S., Japan and the euro area. The U.K. economy contracted 0.6 percent in the third quarter after stalling in the second, government data show.

The central bank cut the key interest rate yesterday to the lowest since it was founded in 1694 to keep the credit squeeze from deepening the recession.

The bank may lower rates further as the recession raises a “considerable risk” that the inflation rate will fall below the bank’s 2 percent target, George Buckley, economist at Deutsche Bank AG in London, said yesterday.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: January 9, 2009 05:10 EST