LONDON (Reuters) - The British economy moved a step closer to recession yesterday after more dismal data showed home sales halving and manufacturers planning to slash output and jobs as their confidence dwindled to a 28-year low.

The Confederation of British Industry said factory orders slumped in October and 65,000 jobs could disappear by the end of the year as firms expected output to fall at its sharpest pace since July 1980, when Britain was in a deep recession.

"The plunge in orders, output and confidence is so sharp that it raises risks that the recession will be really severe," said Michael Saunders, economist at Citigroup.

Analysts say the economy will almost certainly have shrunk for the first time since the early 1990s when third GDP quarter figures are released on Friday — Q4 could be even worse as the financial crisis became most severe at the end of Q3. The CBI survey's quarterly business situation balance fell 20 points to -60 in October, its lowest since July 1980 when the British economy was in the middle of a painful recession.

Other economic news yesterday was just as gloomy. The number of properties changing hands crashed 53 percent on the year last month, according to government data, as the housing boom has turned to bust in the face of a global credit crunch.

Two of Britain's biggest clothing retailers, Arcadia and Debenhams, reported profits falling fast as consumers cut back their spending.

And Japan's Nissan Motor Co said it would halt production at its plant in Sunderland, north-east England, for two weeks due to a slide in sales of its Micra and Note models.

"The sharp manufacturing downturn and substantially reduced price pressures evident in the CBI survey heightens the case for the BoE to cut interest rates aggressively again in November," said Howard Archer, economist at Global Insight.

"We expect interest rates to come down to 2.50 percent in 2009 and they could come down even lower as the UK economy looks set to contract by at least one percent."

The government is hoping its multi-billion pounds bank rescue package will get mortgage lending and loans to small businesses flowing again, and so protect the economy from the worst effects of the credit crunch.

It has also signalled it will borrow more despite public borrowing in the first six months of the financial year already hitting the highest level since just after World War Two.

Finance minister Alistair Darling will put forward his pre-budget report in the next few weeks and ministers have signalled expenditure on capital projects could be brought forward.