The British Chambers of Commerce (BCC) said exporters were suffering a "significant competitive disadvantage" in Europe and were looking for new overseas markets.
The warning came as the BCC's latest economic survey showed manufacturing export sales contracted for the sixth quarter in a row. But the survey also revealed the domestic economy is on track for recovery with manufacturers' UK sales growing at their fastest rate since the survey began in 1985.
The BCC said the export position was worst for small and medium-sized companies, who registered no improvement since the last survey.
Ian Peters, the BCC deputy director-general, said businesses wanted to see sterling fall from its current high level, equivalent to 3 German marks to the pound, to DM2.60.
"Exporters have responded to the weak euro and are now clearly looking beyond euroland, having suffered losses in European markets," Dr Peters said."The result may be companies withdrawing from these markets, which would not be a good thing."
Ian Fletcher, the BCC's chief economic adviser, said: "They are coping with it but the price is reduced margins and cutting back of investment."
The export gloom tarnished an otherwise positive survey that showed the UK economy was on track towards recovery with few signs of inflationary pressure because of fierce competition. The number of firms intending to raise prices over the next three months is at its lowest level for two years.
Manufacturers' sales grew for the first time in a year, while services companies also grew but at a less dramatic rate following the latest interest rate cuts. The rate of job shedding has fallen with few signs of recruitment difficulties or wage pressures. Dr Peters said interest rates should be kept on hold at 5 per cent as inflation was still well below the Government's targets.
A separate survey yesterday showed engineering pay deals have fallen to their lowest level for five years with a significant number imposing pay freezes.Reuse content