The manufacturing sector could lose 36,000 jobs over the rest of the year, the CBI predicted today, after its latest survey showed industrial companies’ confidence was plunging in the face of soaring costs and weakening orders.

Sentiment among manufacturing companies over the past three months has tumbled sharply to its lowest levels since 2001, in the aftermath of the September 11 terrorist attacks on America, the CBI reported.

The growing mood of pessimism in industry comes after manufacturers’ expectations of their future output sank to a five-year low this month, as orders from Britain’s domestic markets and overseas slide.

The CBI said that it now expects industrial output to have fallen outright in the second and third quarter, in a trend that would put manufacturing into recessionary territory.

But there was little sign that the sector’s deteriorating conditions are doing much to quell intense cost and price pressures that threaten to force the Bank of England to increase interest rates.

The CBI’s results found that cost pressures in manufacturing are at their fiercest since 1980, with the average cost for each unit of production rising for 65 per cent of manufacturing businesses, and falling for just 7 per cent.

The consequence is that industrial firms are continuing to attempt to pass on higher costs in the prices of goods leaving factories.

Prices for domestic sales and exports rose in the past quarter at their fastest pace since April 1995, according to today’s survey. Companies’ expectations of future price increases reached their highest levels since January 1990 for UK sales, and since the start of 1995 for export sales.

“Cost pressures on manufacturers have been noticeable for over four years and the last three months have been their most intense for nearly three decades,” Ian McCafferty, the CBI’s chief economic adviser, said.

“So it comes as little surprise that manufacturers are passing some of these higher costs on to customers, although this is unlikely to rescue profits from a margin squeeze.”

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