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The outlook for manufacturing output continued to deteriorate in August, following the first negative expectation since December 2005 highlighted in the July survey.

While 20 per cent of firms in the August survey expect their volume of output to increase in the coming quarter, 33 per cent also expect it will fall.

The resulting balance of -13 per cent is the weakest since December 2001 when it was -28 per cent, the CBI said.

At the same time, the balance of firms expecting the price of manufactured goods to rise has barely changed since last month's 18-year high.

Demand for manufactured goods weakened for a second month after signs of improvement earlier in the summer.

A net 13 per cent of manufacturers judged total order book levels to be 'below normal', matching April’s 18-month low figure.

Firms' perception of export orders was less negative, indicating that external demand is holding up somewhat better, although this month's balance of -9 per cent is the lowest since May at -12 per cent, the CBI said.

A balance of 31 per cent of manufacturers expects prices will rise in the coming three months, consistent with continued intense upward price pressures.

The CBI said that cost pressures from food and other commodities are still having an impact on manufacturers, despite recent falls in the price of oil.

Ian McCafferty, the CBI's chief economic adviser, said: "Manufacturers are becoming more downbeat about forthcoming levels of activity but are still having to raise their prices due to the severity of recent cost increases.

"Domestic conditions remain sluggish and the recent slowdown in the Eurozone economies is starting to make conditions tougher for UK manufacturing exporters, although the weaker pound will offer some relief."

The most recent CBI economic forecast, published in June, predicted that UK GDP growth would slow from 1.7 per cent this year to 1.3 per cent in 2009.