Confidence among UK manufacturers is falling for the first time in a year, according to the latest survey by the Confederation of British Industry (CBI).

The CBI's Quarterly Industrial Trends Survey, published yesterday, found that business confidence, export orders and employment levels had all fallen in the last quarter - alarming signs that the recovery in the manufacturing sector has stalled.

A look at the underlying trends reveals that domestic orders are flat and that export orders have fallen. Over the next four months, companies expect a rise in domestic orders to offset a further fall in export orders.

Output failed to rise as expected over the past four months and firms expect no growth over the next four months. The factor most limiting output is shortage of demand, followed by a shortage of skilled labour, which is more of a constraint than at any time for two years.

"These results are generally depressing and send some ominous signals," said Nick Reilly, chairman and managing director of Vauxhall Motors and head of the CBI's economic affairs committee. "There is now an opportunity for the Bank of England to leave interest rates on hold, indicating that they have peaked and encouraging a decline in the exchange rate."

Anna Lagerkvist