Britain's manufacturing industry is set to cut thousands more jobs after a survey showed the number of factories working below capacity had hit a 20-year high.

The quarterly survey, by employers' organisation the CBI, predicted 42,000 manufacturing jobs would be lost in the first three months of this year.

Firms also plan to cut investment in buildings, plant and machinery at a "significant rate" over the next year.

The CBI's projections came as it showed the effect a two-year decline in orders and output had had on industry.

The survey, covering the four months to January, said the number of manufacturers working below capacity had risen to 74 per cent, the highest percentage since January 1983.

It showed orders continued to fall - 31 per cent of firms suffered a fall in total orders while 22 per cent enjoyed a rise - giving a balance of minus 9 per cent on its scale.

Output also fell and firms no longer expected any noticeable rise in either orders or output over the next four months.

Ian McCafferty, CBI chief economist, said: "Large sections of UK factories are standing idle.

"With little let-up in the two-year decline in orders and output, the overall picture will concern manufacturers.

"Rising oil prices have been exacerbated by problems in Venezuela and the Middle East and April's rise in National Insurance contributions will be a blow to firms already under the cosh.

"This promises to be another challenging year for manufacturers."