BELEAGUERED manufacturers are facing deteriorating conditions, with export optimism showing the sharpest fall for more than two-and-a-half years.

The quarterly industrial trends survey, by the CBI, showed a decline in domestic and export orders, weakening investment intentions and increased job losses.

Export optimism for the year ahead saw the fastest fall since October 1998, amid continuing concerns about global demand.

Export orders in the last quarter fell more sharply than expected, with 37 per cent of firms saying orders were down, against 17 per cent reporting a rise - a balance of minus 20 on the scale, compared with minus 15 in April.

Domestic orders also fell with 31 per cent of firms saying orders were down and 19 per cent reporting a rise, giving a balance of minus 12, although that was not as bad as April, when the balance was minus 14 .

Manufacturing output in the last quarter fell at its fastest rate for two years, with 30 per cent saying output was down, against 21 per cent reporting a rise.

Nick Reilly, chairman of the CBI's economic affairs committee and managing director of Vauxhall Motors, said the economic slowdown in the US and Germany was having an impact on UK manufacturers' ability to export.

"Prospects for the next four months include more job losses and a risk of a further decline in output," he said.

"Having allowed for continued robust growth and consumer spending, we still believe the difficult world economic backdrop is sufficient to justify a quarter-point cut in interest rates."