Update:
I tried adjusting up the cable as far as it would go (and everything inbetween) before it started to make gear shifting difficult. Unfortunately, this didn't fix the problem.
I then had a look at the parts in the middle of the bike, where the pedals attach- i guess that's the bottom bracket!
The knurled collar thing although not very loose was not exactly tight either so i tweaked it up and that seemed to improve the slipping but the knocking noise is still very noticeable.
Finally, i've tried loosening the collar and tapping the the centre part a few millimeters clockwise and anticlockwise before retightening the collar (just incase it's worked it's way out of adjustment). This doesn't seem to have made much difference but i'm not sure which direction, if any, i'm supposed to be turning it!
Any more advice or is the knocking indicative of a worn out part rather than something that can be adjusted?
Cheers, Matt