MANUFACTURERS are still locked in a downturn, according to the latest quarterly survey from the CBI.

The organisations industrial trends survey paints a picture of a sector struggling for momentum, with falls in orders, output and employment all recorded.

The survey of 900 companies showed confidence in the past three months had continued to decline, with falls in orders showing their fastest decline for four years.

Ian McCafferty, the CBI's chief economic advisor, said the latest data signalled a further cut in interest rates may be necessary.

He added: "Manufacturers have enjoyed little relief in the three months following the end of conflict in Iraq and the downturn in orders appears relentless, despite the recent softening of the pound.

"Manufacturers' main hope is that a pick-up in the US later this year helps trigger a gradual recovery in the UK."

Mr McCafferty said the war in Iraq and its conclusion had made little difference in terms of the outlook for the manufacturing industry during the next three to four months, with the downturn apparently "continuing relentlessly".

The study showed domestic orders slipped more than expected during the past three months with 38 per cent of firms reporting a fall against 14 per cent seeing a rise.

Export orders fell at their fastest rate for 18 months, with 39 per cent of firms recording a fall and only 16 per cent seeing a rise.

The CBI said firms did not see a decline in either domestic or export orders coming to an end during the next quarter.

Output declined in line with expectations during the past quarter and firms expect a further, but noticeably smaller decline during the next three months.

However, job cuts continued at a rapid pace, although at a slower rate than the previous quarter.

The CBI said manufacturers managed to hold down costs during the quarter, but that manufacturers plan to cut investment in building, plant and machinery at a significant rate during the next year.