Worries over the fragile recovery among UK manufacturers have intensified after growth slowed to a nine-month low in August.
The Chartered Institute of Purchasing and Supply’s (CIPS) activity index, where a reading over 50 indicates growth, slipped to 54.3 last month - the lowest since last November.
CIPS chief executive David Noble said nerves over the potential impact of deficit-busting measures was hampering sales growth.
“The looming public sector spending cuts are keeping UK manufacturers on tenterhooks and slowing the pace of recovery,” he warned.
The slowdown in activity was bigger than feared by the market, falling from a reading of 56.9 in July.
Firms saw a “modest” rise in export orders, but the growth was well below the record highs seen earlier this year and support from overseas is “fizzling out”, according to Markit senior economist Rob Dobson.
The closely-watched measure of new orders as a proportion of stockpiles also fell to a 17-month low - suggesting further slowdown in production ahead.
Consumer goods manufacturers bore the brunt of the slide, offsetting higher demand for capital goods, such as plant and machinery.
Employment rose for the fifth month in a row, but firms are still facing cost pressures due to rising raw materials prices.
According to official figures, manufacturing output grew by 1.6 per cent in the second quarter of 2010 as the economy advanced at the fastest rate since 2001.
Graeme Allinson, head of manufacturing at Barclays Corporate, added: “Despite a marked August slowdown in growth, UK manufacturing continues to climb back towards pre-recession output levels. However, there are still several key areas that must show further improvement in order to underpin a sustainable manufacturing recovery; stronger UK export growth, particularly in developing countries, employment moving from job replacement to job creation, and a marked increase in non-essential investment.
“In comparison with other sectors we as a bank have seen very few bad debts within the manufacturing sector and virtually no write offs through the recession. This shows manufacturing is already lean, but also points to a conservative sector, reluctant to take on more debt even if opportunities are presenting themselves and their bank is keen to lend to the sector, as we are.This in itself could hinder UK manufacturing more than any other factor.”