Manufacturers output expectations for the next three months are the weakest for seven years, the latest CBI Industrial Trends Survey reveals.
At the same time, the balance of firms expecting the price of manufactured goods to rise has barely changed since last months 18-year high.
The outlook for manufacturing output has continued to deteriorate in August, following the first negative expectation since December 2005 in July.
While 20% of firms in this months survey expect their volume of output will increase in the coming quarter, 33% expect it will fall. The resulting balance of -13% is the weakest since December 2001 (-28%).
Demand for manufactured goods weakened for a second month after signs of improvement earlier in the summer. A net 13% of manufacturers judged total order book levels to be below normal, matching Aprils 18-month low figure. Firms perception of export orders was less negative, indicating that external demand is holding up somewhat better, though this months balance of -9% is the lowest since May (-12%).
A balance of 31% of manufacturers expects prices will rise in the coming three months, slightly lower than the 18-year high recorded in July, but consistent with continued intense upward price pressures. After a long period of steep cost increases, cost pressures from food and other commodities are clearly still having an impact, despite recent falls in the price of oil.
Ian McCafferty, the CBIs Chief Economic Adviser said: "Manufacturers are becoming more downbeat about forthcoming levels of activity but are still having to raise their prices due to the severity of recent cost increases.
"Domestic conditions remain sluggish and the recent slowdown in the eurozone economies is starting to make conditions tougher for UK manufacturing exporters, although the weaker pound will offer some relief."
The most recent CBI economic forecast, published in June, predicted that UK GDP growth would slow from 1.7% this year to 1.3% in 2009. The next CBI economic forecast will be published on Monday 15th September.