Manufacturing has "moved down a gear" with emptying order books and continuing commodity price rises contributing to a gloomy month for Britain's firms, the CBI has warned.
And the employer's organisation has renewed its call for no more rises in interest rates in the wake of forecasts that GDP growth will slow in the next two years.
Overall, manufacturing orders are languishing at levels last seen 18 months ago, according to the organisation's monthly Industrial Trends Survey which was published yesterday.
Despite intense cost pressures notably from oil and metal prices, manufacturers expect to find it difficult to increase their own prices at the factory gate in the coming months.
Only 20 per cent of firms said they expected to reduce their own prices over the next three months while 17 per cent said they expected to increase them.
The balance of minus three per cent represents the weakest expectation since March 2004.
A total of 41 per cent of firms say their order books are below normal, while 19 per cent say they are above normal.
CBI head of economic analysis Doug Godden said: "Manufacturing activity has moved down a gear over the past couple of months.
"Looking ahead we could see more of the same with orders from home and overseas remaining weak, stocks of finished goods at above-average levels, and output expectations consequently subdued.
"But the impact of slowing demand and fierce competition does not stop there. Price expectations are at their weakest for 14 months and prices for consumer goods are also expected to fall markedly over the next quarter.
"With input costs remaining at unusually high levels, the consequences for profitability in the sector are worrying."
Although demand for capital and consumer goods remains subdued, particularly weak order books are being experienced by producers of intermediate goods - products such as components and chemicals which are subsequently used up in the production of other goods.
There is significant divergence between the sectors; producers of food, drink and tobacco and chemicals expect robust output growth, while metal manufacturers expect a sharp decline in output.
Meanwhile, the CBI has reduced its forecast for GDP growth in the wake of continued high oil prices, more moderate global growth and slower consumer spending.
Its quarterly predictions have been revised down by 0.2 per cent to 2.5 per cent for 2005 and down 0.3 per cent to 2.3 per cent for 2006.
Oil prices are expected to average around $10 per barrel more in 2005 and 2006 than assumed in the February CBI economic forecast, which will affect consumption across the globe.
Consumer spending, which fuelled much of the growth in the last few years, is likely to be lower in the next two years than previously thought, the CBI added.
Although employment is set to remain stable, the impact of last year's interest rate rises will continue to feed through as will the effects of a cooling housing market. Higher fuel costs are also expected to push inflation higher, peaking at 2.2 per cent in the fourth quarter of 2005.
Overall, slower economic growth, receding concerns over levels of spare capacity and the expected easing of oil-related price pressures in 2006 suggest that the interest rate cycle has now peaked.
CBI deputy director general John Cridland said: "The economic outlook for the next two years is relatively healthy, but the business sector is facing tough conditions.
"Profit margins are significantly down on where we would expect them to be at this point in the economic cycle.
"All our forecasts strengthen the case against any further rise in interest rates."