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LONDON, Jan 9 (Reuters) - British manufacturing output slumped at its fastest annual pace since 1981 in November, official data showed on Friday, raising the risk that the economy shrank more than already feared at the end of 2008.
The Office for National Statistics said manufacturing output fell 2.9 percent on the month, the biggest fall since the Queen's Jubilee holidays in the summer of 2002 and well below analysts' forecasts for a reading of -0.7 percent.
That took the annual rate down to -7.4 percent, the weakest since June 1981.
The broader measure of industrial output fell 2.3 percent on the month for a 6.9 percent annual fall. That annual decline was the weakest since March 1981.
Sterling and Britain's top share index fell as the figures added to growing expectations that Britain is facing a deep recession and interest rates, currently at 1.5 percent, could near zero soon.
"These numbers are even worse than we expected and twice as bad as October," said Philip Shaw, chief economist at Investec.
"We had already revised our gross domestic product (GDP) forecast for the fourth quarter down to -1.4 percent and -2.0 percent for 2009. We may have to take another look at that and push the numbers lower."
ONS analysts declined to comment on how big an impact the figures would have on their preliminary estimate of GDP in the last three months of 2008, which is due on Jan. 23.
Separately, ONS data for producer price inflation for December came in higher than expected.
Output prices were unchanged on the month, compared to analysts' expectations for a fall of 0.7 percent. That left prices up 4.7 percent on the year, the weakest since December 2007.
Input prices fell 2.0 percent in December, taking the annual rate down to 4.3 percent, the weakest since August 2007.
Policymakers expected price pressures to continue to ease sharply this year as the global economic slowdown strips raw material producers of their pricing power.
(Editing by Ruth Pitchford)