BUSINESS confidence in the troubled manufacturing sector is falling at the fastest rate for 18 months, according to the Confederation of British Industry.

In its quarterly survey of industrial trends, the CBI said both business confidence and the optimism for exports were plummeting. Manufacturers expected orders to keep on falling over the next four months, with expectations at their lowest since January 1999, said the CBI.

Output also fell at its fastest rate for a year, but manufacturers said they expected output to rise slightly over the next four months. A lack of skilled workers had become more of a constraint than at any time since October 1997, said the CBI.

Although Corus, formerly British Steel announced 2,500 job losses in the sector, including 530 on Teesside, the number of jobs being cut was relatively stable in the period.

Businesses said they expected to continue cutting jobs in the next four months, but the rate would be less rapid than during the first half of the year.

Nick Reilly, head of the CBI's economic affairs committee, said: "Manufacturing is faltering and risks slipping back into a downturn. Orders, output and confidence have all fallen for the second survey in a row. UK companies have no real respite from the strength of sterling against the euro which has made it more difficult to compete abroad and at home." He urged the Bank of England's Monetary Policy Committee to keep rates on hold at 6 per cent when it meets again next month and to signal that rates will be coming down in the near future.

The CBI's gloomy analysis showed the gulf between manufacturing and the booming service service was as wide as ever.