Its latest quarterly industrial trends survey paints a gloomy picture of the state of the UK's manufacturing industry, with business confidence falling to its lowest level since 1980.

Adair Turner, Director-General of the CBI, said:

"Combined with the weaker growth now evident in other sectors of the economy, this survey suggests a sharp downturn for the UK in the short term, with an increased risk of outright recession."

Gloom spreading

Nearly two-thirds of manufacturers were more pessimistic about business conditions, compared to only 3% who were more optimistic.

And a big majority expected further falls in the numbers they employed.

CBI Director General Adair Turner: 'Several rate cuts may be necessary'

Exporters were particularly gloomy, with export orders falling at the sharpest rate since 1977.

But the gloom has now spread to the domestic order book, which fell by the largest amount since l992.

Manufacturers have long complained that the high pound and the Asian crisis have been hitting exports. But now it appears that domestic production has also been hurt by cheaper imports.

Growing likelihood of recession

Neil Parker of the Royal Bank of Scotland said that the survey was worse than the markets were expecting.

"The October CBI survey was exceptionally disappointing, even though we were expecting weak numbers...the survey suggests further slowdown or recession ahead."

Other surveys have also showed a growing pessimism in the business community, although the government's official growth figures have yet to reflect the full extent of the slowdown.

Business confidence is generally believed to be a good predictor of future output of the economy, however.

The financial markets interpreted the news as making it more likely that the Bank of England will cut rates again. That led to the pound sterling falling, as lower interest rate make the pound less attractive to hold.