Manufacturers were still locked in a downturn after a quarterly survey showed further falls in orders, output and employment.

The CBI's industrial trends study paints a picture of a sector struggling for momentum despite the end of the Iraq conflict.

Yesterday's survey involving 900 companies showed confidence in the past three months continued to decline, while further falls in total orders added to the fastest decline in four years seen in April.

Ian McCafferty, the CBI's chief economic adviser, said the latest data signalled a further cut in interest rates may be necessary.

He added: "Manufacturers have enjoyed little relief in the three months following the end of conflict in Iraq and the downturn in orders appears relentless, despite the recent softening of the pound.

"Manufacturers' main hope is that a pick-up in the US later this year helps trigger a gradual recovery in the UK."

The study showed domestic orders slipped more than expected during the past three months with 38 per cent of firms reporting a fall against 14 per cent seeing a rise. And export orders fell at their fastest rate for 18 months, with 39 per cent of firms recording a fall in export orders and only 16 per cent seeing a rise.