THE Bank of England has heaped more gloom on nervy UK businesses as it warned the economic downturn may have further to go.

With the manufacturing sector already in recession, the Bank said it faced "considerable uncertainties" in forecasting the outlook for the UK economy.

The Bank said in its quarterly inflation report: "The possibility that the slowdown in the international economy may be deeper or more prolonged remains a downside risk.

"The overall risks to growth continue to be on the downside."

Economic experts said the comments increased the chances of another interest rate cut, particularly as inflationary pressures appeared under control.

The Bank's Monetary Policy Committee (MPC) sanctioned a surprise interest rate cut last week in a move which risks over-stimulating the buoyant consumer sector.

However, the Bank said: "Delaying any policy response risked deepening the downturn and pushing inflation below target."

Mervyn King, deputy governor responsible for monetary policy, said it had not been an easy decision for the nine-member committee.

He added: "The committee was faced with a choice - to surprise people last week by cutting rates or to surprise them by publishing a forecast which indicated that a further cut was likely."

The underlying rate of inflation is currently 0.1 per cent below Chancellor Gordon Brown's target of 2.5 per cent, although the Bank expects the figure to slip back to about two per cent early next year before edging back towards its target.

However, projections for GDP growth show the rate will be slightly below initial forecasts, with the economy expected to expand by two per cent this year.