Slowdown arising from global financial meltdown is spreading to other parts of the economy, a survey from the Confederation of British Industry (CBI) has warned, with flailing demand for UK-made goods and a dip in output, prompting the sharpest single-quarter fall in manufacturing confidence in almost 30 years.

Only four per cent of firms surveyed by the CBI were more optimistic than three months earlier, with 64 per cent feeling less optimistic. Moreover, the CBI found that in the last three months, 16 per cent of companies had seen orders rise, versus 46 per cent who reported orders beating a retreat. According to its Industrial Trends survey, orders for UK-made goods declined at the speediest rate since 1999, with domestic demand depressed.

Prospects for manufacturers are being negatively impacted by the credit crunch, with many companies encountering greater lending problems. Many sector players intend to slash spend on machinery and buildings over the coming year, with the number planning cuts running at its highest rate since the early 1980s.

The Labour government’s £350 million aid package for small- and medium-sized businesses has been was welcomed by business bodies including the Federation of Small Businesses (FSB), as well as manufacturers’ and engineers’ association, the EEF. The EEF however, has urged the government to go further in the forthcoming pre-Budget statement and make proposals to maintain cash flow and investment.

Martin Temple, chairman, says ‘the government clearly understands the pressures companies are under and this is a useful first building block. However, we need to build on this urgently with measures to assist companies with their cashflow and ensure responsible lending together with a delay in the planned increases in taxation and new regulatory measures.’