Manufacturers hit by slow demand and high cost of crude, says CBI

The recovery in British manufacturing has again been cast in doubt after a survey yesterday revealed a slump in business confidence to the weakest level since the middle of last year.

The recovery in British manufacturing has again been cast in doubt after a survey yesterday revealed a slump in business confidence to the weakest level since the middle of last year.

The Confederation of British Industry's quarterly industrial trends report showed a measure of confidence slipped to minus 10 per cent in October from plus 7 per cent in the July survey. That was the lowest recorded balance since July 2003. Manufacturers became more gloomy as demand slowed and oil prices surged to record levels, eroding their profit margins.

Ian McCafferty, the CBI's chief economic adviser, said: "There are clear threats to the manufacturing sector. Manufacturers are cutting back on investment and jobs as they become less confident in the pace of recovery. Oil and commodity prices are damaging profitability and we expect this pressure on margins to be maintained."

The lobby group said oil prices had risen by one-third over the past three months while metals prices were up 16 per cent, pushing up companies' costs.

A balance of 12 per cent of firms said that their order books shrank this month, compared with 6 per cent in September, monthly CBI measures showed.

Brendan Barber, the general secretary of the Trades' Union Congress, said: "Thousands of dedicated manufacturing workers face Christmas without work. We are a long way from a solid manufacturing recovery." Along with the CBI, he called on the Bank of England to consider the plight of industry and keep interest rates on hold at its meeting in November.

However, the CBI survey also showed that manufacturers' expectations improved for the next month, with a balance of 14 per cent anticipating a rise in production, up from 12 per cent in September. That was better than some analysts had expected.

Ciaran Barr, at Deutsche Bank, noted the improvement in output expectations and said the survey provided "a very confused message, with firms not exactly reporting buoyant conditions".

Official data last week showed the economy was growing in the third quarter at its slowest rate since early last year, after industrial production posted its steepest fall since the end of 2001.

But Richard Lambert, a member of the Bank's Monetary Policy Committee, said yesterday that he thought the 0.4 per cent GDP figure underestimated the rate of growth in the third quarter. "I'm not sure that the economy is quite as slow as the official data suggested at the end of last week," he said.