The CBI said that 75,000 factory jobs could be axed in the next three months, with manufacturers expecting to cut production for a twelfth consecutive quarter. By a three-to-one majority, manufacturers are more gloomy about business prospects than they were four months ago.
Optimism among exporters has risen to a five-year high, devaluation of the pound having made goods cheaper overseas. The survey was carried out after sterling left the European exchange rate mechanism, but before interest rates fell to 8 per cent.
Improved export prospects mean that manufacturers foresee a smaller drop in output in the next four months than they did before the ERM debacle. But even export optimism was tempered by concern that the economies of many overseas markets are slowing down.
'Manufacturing industry is clearly very depressed and there is little sign of an increase in activity with conditions remaining difficult both at home and abroad,' said Sir David Lees, chairman of the CBI economics committee.
Sir David called on Norman Lamont, the Chancellor, to cut interest rates and maintain government spending on capital projects. He looked forward to tomorrow's Mansion House speech with 'acute anticipation' for more detail of government policy.
Mr Lamont plans to use the speech to head off criticism that policy is being driven by political whim. He will announce the publication of regular assessments of the economy and the Government's policy stance. This is aimed at boosting its credibility with the public and financial markets.
The CBI survey also shows that nearly twice as many manufacturers plan to cut investment in the coming year as intend to increase it. This is the gloomiest outlook for more than a year and points to a 10 per cent drop in investment in 1992. 'This is clearly a threat to our medium and long-term competitiveness', Sir David said.
Some City economists are worried that if the Government cuts interest rates too rapidly, and allows the pound to drop too far, inflation may flare up. But the survey shows pressure on prices remains very weak.
Manufacturers said the cost of producing each unit of output fell in the past four months for the first time since the survey began in 1958. City economists were also cheered that manufacturers expect their prices to increase less quickly than their costs, suggesting some of the rise in import prices because of a lower pound will be absorbed by profits rather than passed on to the consumer.
The pound fell nearly two pfennigs to DM2.4156 on City worries about the economy and political uncertainty. Speculation grew that the Government would cut interest rates soon to divert attention from its difficulties.
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