"There is a ray of hope as the downturn may be less severe this year than manufacturers had feared," said CBI economist Sudhir Junankar. But the absence of wage and price pressures meant the Bank of England should cut interest rates by half a point next month, he added.
City analysts said the survey was unlikely to tip the balance of evidence for the Monetary Policy Committee (MPC). "This is probably as bad as it gets for manufacturing," said Adam Cole of HSBC Markets.
Separately, the Court of the Bank of England said yesterday that it would meet in Birmingham on 19 May. Although it has only ever met outside London once (in Gloucester in 1991), in future it will regularly hold some monthly meetings in the offices of the Bank's regional agents.
Members of the MPC will also attend, and will meet West Midlands business representatives. This follows a series of individual visits to regions by MPC members, including a high-profile trip by Eddie George, Bank Governor, to Newcastle.
The 12 agents are the main channel of communication between the manufacturing regions and the Bank. Business organisations are calling for further cuts in interest rates, with manufacturers hit by the strong pound most vociferous.
The latest official figures showed manufacturing output falling by 1 per cent in the three months to January. Employment in manufacturing fell by 109,000 during the same period.
"Manufacturing productivity has started to improve significantly as companies cut costs. It is a sign they have given up hope of a sharp fall in the pound to bail them out," said Mr Cole.
Companies surveyed expect output to fall in the next four months, but expectations are the least negative since last June. Total order books were at their least depressed since August: the balance reporting higher rather than lower orders was minus 34 per cent.
Within this, the negative balance on export orders was minus 41 per cent. But, although the pound had dented overseas orders compared with February, the outlook has improved compared with the low point last year. The survey continued to show sharp falls in prices charged at the factory gate.
Separately, Sir Clive Thompson, CBI chairman, called on the Government not to impose any new red tape on businesses. In a speech in Manchester last night he set out a five-point plan for reducing the burden of regulation, including a moratorium on new business legislation in this parliament.