EMPLOYERS organisation, the CBI, has fired a warning shot to the Bank of England not to raise interest rates next week.

The Bank's Monetary Policy Committee (MPC) will decide whether to change interest rates, currently at six per cent next Thursday.

But the CBI warned confidence among manufacturers was continuing to fall as margins were squeezed, stifling future investment and any move to raise rates would be ''very damaging''.

The weakness of the euro against other currencies, particularly sterling and the US dollar, was also dampening the prospects for exports.

Nick Reilly, head of the CBI's economic affairs committee, said: ''There is a continuing unhealthy erosion of our manufacturing infrastructure and the Bank of England should recognise that an interest rate rise at this stage would be very damaging to this sector.

''Economic indicators, taken together, do not justify a rate rise and firms need a signal that interest rates have peaked and any future moves will be downwards.''

The latest CBI quarterly industrial trends survey, for the three months to September, found business confidence falling for the third time in a row.

A total of 25 per cent of manufacturers questioned were less confident about the business situation than in July, compared with 16 per cent who were more confident.

This giving a balance of negative nine per cent, slightly better than July's balance of negative ten per cent.

Confidence about the prospects for exports over the year was also down, but falling at a slower rate than before.

A total of 24 per cent of firms were less optimistic, against 18 per cent who were more optimistic, giving a balance of negative six per cent, compared with negative 18 per cent in July.

There were fewer job cuts than expected in the period, however, with job losses running at their slowest rate since April 1998.