British manufacturers' business confidence in the three months to October deteriorated to its weakest level since the middle of last year as input prices, particularly oil, remained high, a survey showed on Tuesday.
The Confederation of British Industry's quarterly industrial trends survey showed the business situation balance slipped to -10 in October from +7 in the prior survey - marking its lowest point since -13 recorded in July 2003.
The CBI also said its monthly October order book balance dropped to -12 in October from -6 in September, the lowest since April, although companies were more optimistic than they were in September over production in the next three months.
Still, analysts said the survey provided further evidence the manufacturing recovery is fragile and perhaps faltering, and the CBI called on the Bank of England to keep interest rates on hold at 4.75 percent in the months ahead.
Most analysts expect the BoE to leave rates steady at 4.75 percent for the rest of this year, although many are debating whether there may be one more hike to come early next year and others still are predicting cuts by the second half.
"The weakness of this survey supports our view that rates are likely to fall next year to support overall economic growth," said Jonathan Loynes, economist at Capital Economics.
The pound fell against the dollar and the euro after the figures were released as financial markets became more convinced that a peak in rates has been reached.
The squeeze from higher oil prices and an inability of companies to pass those costs on - at least in the UK - caused many of them to scale back employment plans and others to dramatically trim down their plans for capital investment.
Indeed, the percentage of companies reporting they were operating below existing capacity held steady on the quarter at just more than half - 54 percent.
"Manufacturers are cutting back on investment and jobs as they become less confident in the pace of the recovery. Oil and commodity prices are damaging profitability and we expect this pressure on margins to be maintained," said Ian McCafferty, the CBI's chief economic adviser.
The CBI said oil prices had risen 75 percent since October 2003.
But the report also showed exporters had something to cheer about over the past three months, marking the first increase in average export prices and the highest quarterly export prices balance since October 1995.
Companies expect to raise prices similarly over the next three month, the report said, adding that firms reported that a slight fall in sterling since the summer - which has come as analysts have scaled back expectations for higher borrowing costs - had helped their export position.
The quarterly survey also showed that a larger proportion of manufactured goods produced were ending up in warehouses as the volumes of stocks of finished goods were built up at the fastest rate in 2-1/2 years. But the latest monthly trend showed that rate was not accelerating in October.
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