The decline comes on top of a 57% fall in revenue from overseas investment last year, according to research by trade paper Screen International.

The home grown industry proved strong last year but new figures show the number of UK productions fell from 62 films begining production to just 38 in the first nine months of 2002.

But the Film Council, which was set up to champion and invest in UK films, is confident that the figures do not signal the death knell for the industry.

In common with its international counterparts the UK film industry faces a difficult economic situation

Film Council spokesman

The closing of Channel 4's film production arm, Film Four, in July because of huge financial losses it incurred did nothing to boost confidence in British film.

There was also a drop in the amount of money spent on UK and US collaborations, with a fall of 44%.

Screen International says US buyers now provide only 25% of budgets compared to 50% several years ago.

The Film Council lays part of the blame for the slump on several factors including last year's threat of strikes by actors and screenwriters and the knock-on effect of 11 September.

Future hopes

But there are encouraging signs with big films such as the second instalment of Harry Potter and the forthcoming James Bond movie being filmed in the UK.

Forthcoming films which could make a big impact on the UK film economy include the spoof spy movie Johnny English, starring Rowan Atkinson, and Love, Actually, the new romantic comedy from Richard Curtis, which teams him back up with Hugh Grant.

There are great hopes for Rowan Atkinson's Johnny English

The Film Council said $115m (�72.4m) had been invested in UK films in the first six months of 2002, down from $165.1m (�106.1m) in the same period last year.

But it is confident there will be an upturn in revenue within the next four or five years.

The Film Council, which is part-funded by the National Lottery, was set up in 1999 to fund and train film makers with the intention of creating a "sustainable film industry for the future" in the UK.

When it launched it said it would take 10 to 15 years to shape a sustainable and profitable film industry.

Impressive talent

It points to the success of Film Council-backed movies such as Gosford Park and Bend it Like Beckham, which have been both critical and commercial successes around the world.

There are high hopes for Peter Mullan's controversial Magdalene Sisters, which has won accolades at a number of film festivals, and Danny Boyle's 28 Days Later.

"In common with its international counterparts the UK film industry faces a difficult economic situation," said a Film Council spokesman.

"But on the positive side the UK continues to benefit from an impressive talent pool of writers, directors and actors, as well as high quality studios and facilities, technicians and craftspeople.

"The challenge for everyone in the industry is to use our creative and industrial strengths to increase the number of stable and growing businesses which are robust enough to see out periods of instability such as the one the global film industry is now experiencing."