I didn't realise that whole piece was the shock. I thought it was on the inside. My mechanic reckons the poor state of the shock where the spring sits is the cause. If you look closely you'll see its bent and distorted so maybe when the spring expands and turns on the shock it's causing it to knock. He's going to take the car in and have a proper look on Friday.
Anyone know roughly how much a standard shock will cost?