BRITISH industrialists expect output to fall to levels last seen in the deep manufacturing of 1980, as a persistent lack of orders has left them over-stocked.

These deeply depressed findings from the CBI’s November Industrial Trends Survey explain why the employers’ organisation brought forward an economic forecast withdrawing its earlier prediction the recession would be short and shallow.

An overwhelming 56 per cent of the 530 manufacturers responding said they expect output to fall in the coming three months and only 14 per cent are looking for an increase. The resulting adverse balance of minus 452 per cent is the lowest since September 1980.

Industrialists have abandoned hopes of pushing through price increases. Twenty per cent said they expect to do so, matched by 20 per cent predicting a fall – while 58 per cent expect no change.

“The outlook for manufacturers has deteriorated considerably since the banking crisis took a turn for the worse in October,” said Iain McCafferty, the CBI’s chief economic adviser. “Expectations for output are the gloomiest for 28 years, while firms’ order books remain weak. With a sharper and more prolonged UK recession in prospect, conditions are going to remain tough for some time. A slowing global economy, particularly in the eurozone, makes the immediate benefits of a weak pound fairly muted for exporters. But weakening factory gate prices will feed to declining inflation in coming months, giving the Bank of England room for significant rate cuts.”

Howard Archer, UK economist at IHS Global Insight, described the findings as “absolutely dire”.

“The sharp manufacturing downturn and substantially reduced price pressures in the CBI survey heightens the case for the Bank of England to cut interest rates aggressively again in December,” he added. “A (0.5 per cent) interest rate cut from three per cent to 2.5 per cent is the absolute minimum the Bank of England will deliver next month and it could reduce interest rates by up to (one per cent) to two per cent.”

A separate report from the EEF showed manufacturing companies clamping down on pay deals in recent months.

Nearly 12 per cent of those monitored by the EEF said they had deferred pay settlements in the three months to October and nearly 13 per cent had frozen pay altogether, more than at any time since December, 2003.

The average for industrial pay settlements eased back to 2.8 per cent, down from a revised 3.1 per cent for the three months to September.

“The severity of these changes over so short a period of time indicates the extent to which companies are having to take immediate action to control their costs,” said David Yeandle, the EEF’s head of employment policy.