Royal celebrations blamed for worst factory output in a decade

The worst performance in a decade for Britain's manufacturers will be confirmed this week as the Bank of England prepares to slash its growth and inflation forecasts.

The impact of the lost working day for the Diamond Jubilee is expected to send the sector's output plunging by 4.2 per cent over June, according to analyst forecasts. Tuesday's figures will mark the worst month for manufacturers since the Queen celebrated 50 years on the throne. Back then – in the context of a growing economy rather than a double-dip recession – manufacturing output shrank 5.6 per cent.

While the sector is expected to have bounced back in July due to the impact of an extra working day, a sustained recovery is not guaranteed. An alarming survey from the Chartered Institute of Purchasing & Supply showed the sector shrinking at its fastest pace for more than three years in July, casting an early shadow over the economy's overall growth.

Economist Osman Ismail of the Centre for Economics and Business Research said: "While turbulence in the eurozone accounted for most of this decline, there were also reports of decreasing orders from Asia. This is worrying, as extra-EU trade seems to offer the UK's best chance of export growth while European economies remain in such prolonged turmoil."

The eurozone crisis will also make its mark again in the Bank's latest quarterly forecasts on Wednesday. Analysts expect the Bank to slash its inflation forecasts in the wake of falling oil prices and a strengthening pound. The MPC is likely to project inflation falling below its 2 per cent target over the longer term, opening the door to more potential quantitative easing (QE) in the autumn.