The UK's smaller manufacturing companies are in recession with no immediate sign of improvement, according to employers' organisation the CBI.

The CBI's latest survey shows a steady fall in orders and output for small and medium sized businesses over the past four months.

The country is seeing its manufacturing base just disappear into sand

Russell Luckock, AE Harris Engineering

Although this reflects the general pattern for all UK manufacturers, the CBI said smaller companies were having a tougher time than their larger counterparts.

Other data out on Monday showed that manufacturers' margins remained under pressure last month, with the prices of goods leaving the factory gate remaining unchanged.

Going out of business

The CBI survey found that larger companies said they expected to see a small pick-up in activity over the next four months, but small and medium sized manufacturers were expecting orders and output to stabilise.

Manufacturers are unable to raise the price of finished goods

And medium sized firms were more positive than small ones.

The CBI found that the volume of export orders was still weak, prices were continuing to fall sharply and costs had risen slightly.

"Smaller manufacturers are disappointed," said Simon Bartley, chair of the CBI's small and medium sized enterprises council.

"The recession maintains a tight grip despite the confident expectations of last quarter."

Russell Luckock, chairman of AE Harris Engineering, said: "I think it's a case of statistics catching up with reality."

He said 21 of his competitors had gone out of business in 2001, but already this year 52 had shut down.

"The country is seeing its manufacturing base just disappear into sand," he said.

Margins squeezed

New figures from the Office for National Statistics (ONS) showed that there are few, if any, inflationary pressures coming from the manufacturing sector.

They showed that the price of goods leaving the factory gate were unchanged in July, although they showed a slight increase of 0.3% when compared to the same month last year.

The ONS said higher tobacco and chemical product prices had been offset by cheaper petrol and clothing.

Prices paid for raw materials rose by 0.6% on a seasonally adjusted basis during July, but were down 3.6% on a year earlier.

"Manufacturers' margins remain under pressure and companies are unable to pass on price rises," said Ross Walker at Royal Bank of Scotland.