If economic conditions continue to weaken over the next few months, CBI members would look for a decisive cut of half a percentage point (in interest rates)

Doug Godden, CBI

The latest quarterly industrial trends survey from the Confederation of British Industry (CBI) found confidence in the sector falling for the first time since January.

The move prompted the CBI to say that there could be scope for a half-point reduction in interest rates if economic conditions worsen in the coming months.

Earlier on Wednesday, the minutes of the last Bank of England rate-setting meeting showed that three members of the Monetary Policy Committee (MPC) voted for a quarter-point cut in rates.

UK interest rates have remained unchanged at 4% since last November.

The going gets tough

The CBI's survey found that 34% of firms were less optimistic about prospects than when they were last quizzed in July, while 15% were more optimistic.

The balance of minus 19% was far worse than the plus 4% recorded in July and the plus 21% in April.

The survey found that 18% of firms saw orders rise, while 34% recorded a fall, and manufacturers also said that the decline in export orders increased.

"Manufacturers had hoped that life was going to get easier but instead it has become tougher," said the CBI's head of economic analysis Doug Godden.

"Economic conditions in the US and Germany are particularly uncertain, and were they to worsen, the UK economy would need further help to prevent a sharp slowdown next year."

Mr Godden said the MPC faced a tricky decision regarding interest rates.

"It would not be helpful for a decision to cut interest rates to be made and then swiftly reversed," he said.

"But if economic conditions continue to weaken over the next few months, CBI members would look for a decisive cut of half a percentage point."