Industry facing 'debilitating downturn'

The confederation of British Industry revived its campaign for a cut in interest rates today as it published a survey showing manufacturers expect a further slump in business over the summer.

The confederation of British Industry revived its campaign for a cut in interest rates today as it published a survey showing manufacturers expect a further slump in business over the summer.

Companies with fewer than 500 employees are gloomy about their trading prospects over the next four months, the CBI said. They expect the volume of orders and output, the number of people they employ and the prices they can charge all to continue falling.

The CBI said that the pace of decline had eased somewhat since its very gloomy January survey but said this was not enough to encourage it to abandon its call for a rate cut.

The employers' organisation was bitterly disappointed that the Bank decided not to cut rates last week.

Simon Bartley, the chairman of the CBI's small and medium enterprise (SME) council, saw the decision as "a missed opportunity". "Manufacturers ... will now hope to see the interest rate cut that business needs next month." He added that the slowing decline of demand would come as some relief, but added that smaller manufacturers were "fighting immensely hard against a debilitating downturn".

The survey also showed that the fall in the pound, which has depreciated 10 per cent against the euro this year, had brought some comfort. On Friday the pound hit a fresh four-year low against the euro of 71.94p, the lowest since the single currency was launched in January 1999. Medium sized firms – those with at least 200 employers – expect a rebound in exports. They also expect the prices they can charge overseas customers to fall at the slowest rate since October 1996.

But manufacturers are unlikely to draw much hope of an imminent rate cut from the Bank of England's forecasts this week, which are expected to revise up the outlooks for growth and inflation. After Thursday's no-change decision, analysts expect the Bank to say on Thursday that the fall in the value of the pound will raise the prices of imports and boost orders for exporters.

Ciaran Barr, the chief UK economist at Deutsche Bank, said: "The fall in sterling could well yield a higher forecast for next year, with growth possibly rising back up to trend rates of 2.5 to 2.75 per cent."This would be welcomed at the Treasury, which is forecasting growth of 3 to 3.5 per cent in 2004 and 2005.

John Butler, the UK economist at HSBC, said: "The message will probably be that they are still nervous about current activity ... domestically and globally but they are getting increasingly optimistic about next year's recovery. That may be premature in our view but is likely to be taken as a hawkish signal [on rates] by the market."