HOPES of a recovery in the hard-hit manufacturing sector were dashed yesterday because of weak domestic and international demand, according to the Confederation of British Industry (CBI).

The CBI's monthly industrial trends survey showed the more competitive pound had yet to benefit exporters.

It highlighted the need for a further cut in interest rates to lift confidence across the sector.

Order books showed no significant improvement on last month and continued to be significantly below normal.

Thirty-nine per cent of firms said orders were below normal while only 12 per cent said they were above.

The balance of minus 27 per cent compares with minus 29 per cent recorded in the May and April surveys.

Overseas demand remained weak with export orders below normal and slightly worse than last month.

Export confidence stood at minus 35 per cent, compared with minus 32 per cent last month.

Firms continued to expect output to decline modestly over the next four months, as shown in the survey by a balance of minus six per cent of companies expecting to cut production, compared with minus three per cent last month.

Doug Godden, CBI head of economic analysis, said: "Demand at home and abroad remains persistently weak and output continues to stagnate.

"Companies are cautious about the future and with no danger from inflation, an interest rate cut remains appropriate."

The survey also showed manufacturers continued to lack pricing power and expected prices to fall further during the next four months.

Fifteen per cent more firms expect prices to be cut, compared with 11 per cent in the last survey.