Double whammy deepens industry gloom

GLOOM surrounding the recession-hit manufacturing sector deepened today as a key industry survey showed firms hit by a double whammy of collapsing sales and spiralling costs.

The CBI said manufacturing orders fell over the past three months for the first time in more than a year, with export orders hampered by sterling's strength against the dollar.

Meanwhile, soaring oil prices have pushed up manufacturing costs to nine-year highs, squeezing wafer-thin margins even tighter.

A net 4% of companies said that orders had fallen - the first negative reading since October 2003. The sector's dire performance has triggered the sharpest fall in confidence for nearly two years. The grim news comes a day after official figures confirmed that industry is in recession.

CBI chief economic adviser Ian McCafferty urged the Bank of England to freeze interest rates at 4.75%. 'They must continue to ensure that inflationary pressures remain under control-but need to be increasingly vigilant to the downside risks in activity,' he said.

The survey came as monetary policy committee member Stephen Nickell dampened hopes of a near-term rate cut by predicting an imminent pick-up in inflation.

'We are entering a period when both domestic and imported goods prices are going to rise,' he wrote in a research paper. 'So, unless there is a further squeeze on distribution margins, it seems likely that goods price inflation will move into positive territory, settling down at a low but positive level.'