Pay deals in manufacturing fell for the first time this year in July, when the three-month average eased back by 0.1 per cent to 2.7 per cent, lower than at any time since July last year.

That leaves industrial pay rising even more slowly compared with average earnings across the economy. These rose by 0.1 per cent to 4.2 per cent in the three months to June.

Stripping out bonuses, the year-on-year increase was unchanged at 4.0 per cent.

The EEF reported that one in ten of the 185 pay settlements it monitored in the latest three months amounted to a freeze, the highest proportion this year. But the number of deals deferred fell to just over two per cent. "These figures highlight the extent to which external cost pressures are bearing down on manufacturers and the efforts they are making to manage costs over which they can have some influence," said David Yeandle, deputy director of employment at the EEF.

"Wage inflationary pressure remains absent from this sector of the economy." This confirms reports from the Bank of England's regional agents. They found that, with the exception of professional services there was "less pressure on employers to concede wage increases, given the easing in recruitment difficulties".

"Bonus payments continued to be high this year, reflecting companies' strong profitability last year," the Bank reported.

"But (the agents') contacts expected bonuses to be lower in the year ahead as profits started to be squeezed following the economic slowdown."

A large number of these contacts suggested that manufacturing ouput fell during July.

"There were some reports that manufacturers had been surprised by the weakening in demand and had been left with excess stocks of unsold goods," the Bank noted.

"Competition from abroad intensified and producers of niche or high-spec items fared best - for example some engineering firms (eg aerospace) were still reporting rises in output and new orders."