Export prospects for UK manufacturers have deteriorated at their fastest rate for 21 years, the Confederation of British Industry has warned.

Just 6% of factories were predicting better export trade over the year ahead, compared with 59% forecasting a gloomier outlook, a CBI survey said.

The figures left the ratio of pessimists compared with optimists was at its highest level since July 1980.

The CBI, which undertook the survey between 20 September and 10 October, said the reflected the turmoil immediately following last month's terror attacks on the US.

"Confidence can be unduly influenced in the short term by dramatic events such as the terrorist attacks," the CBI said.

'Deeply worrying'

But the confederation warned that it was "deeply worrying" that forecasts of corporate output, employment and investment levels were falling simultaneously across business.

Overall business confidence fell to a three-year low, with executives 10 times more likely to say they were pessimistic than optimistic.

Confederation chiefs called for a cut of half a percentage point cut in interest rates to support UK industry, the first time for three years they have demanded such a big reduction.

"Business needs decisive and meaningful action to shore up confidence," CBI director general Digby Jones said.

"With the inflation outlook benign, there is ample scope for the Bank [of England] to lower rates and the economic situation justifies a half-point cut."

Jeremy Hawkins, economist at Bank of America, said the CBI's wish could well be granted.

The survey's findings "probably guarantee" a rate cut next month, he said, with attention now focusing on whether the reduction would be of one quarter or one half of a percentage point.

Hopes dashed

Executives expect orders to the UK market to fall at their quickest rate for 10 years, with the outlook for total orders over the next four months the worst since 1998.

"This overturns hope expressed in the July survey of an end to falling orders," the CBI said.

Ian McCafferty, CBI chief economic adviser, warned that the manufacturing sector was set to fall further behind services over the winter as the order slowdown took hold.

"The survey shows the main impact on the UK economy of the US tragedies is being borne by UK exporters."

But he said that, thanks to the continuing shopping boom, the UK was likely to escape recession.

"The resilience of the consumer sector will continue to provide support," he said.

City reaction

In the City, the survey prompted a decline in sterling against the dollar to $1.4275, from $1.4295.

And it put the brakes on a rise in UK shares. The benchmark FTSE 100 index stood 40 points up at 5,237 in midday trade, an hour after the survey was released, compared with an earlier high of 5,265.