Manufacturers' confidence has seen its sharpest fall for 28 years during the "exceptional economic turbulence" of the past three months, the CBI has warned.
The latest quarterly CBI Industrial Trends survey also showed orders for UK-made goods had fallen at their fastest rate since 1999, much of which was driven by weak domestic demands.
A balance of 60% of the 515 manufacturing firms surveyed said they were less optimistic about the general business situation than three months earlier, representing the fastest fall in confidence since July 1980.
In addition, companies' perceptions of their total order book levels suffered over the quarter, with a balance of 39% reporting levels below normal, the lowest since October 2003.
The gloomy results come ahead of the latest GDP figures on Friday, which are forecast to show the UK economy sliding into negative territory for the first time in 16 years.
Experts are predicting a contraction in GDP, the first in 64 consecutive quarters, in what is set to fuel fears of a global recession.
Ian McCafferty, the CBI's chief economic adviser said: "This survey was conducted during a period of exceptional economic turbulence, so it is unsurprising that confidence has taken such a hit.
"However, the sharp falls in orders and output show that the slowdown in the UK economy is now spreading to sectors previously resilient to the weakness in the banking and housing markets."
He added that it was "of serious concern" that manufacturers now appeared to be affected by constraints on capital, in a way that had not been the case earlier.
"We can but hope that the recapitalisation of banks and the cut in interest rates, which took place just as the survey closed, will prevent a further credit squeeze over the winter."