Fears are growing that Britain's manufacturing sector could be sliding back into recession after a gloomy survey from the CBI.

The business group reported a sharp slowdown in orders in December, driven by a weakening of domestic demand, and found that expectations of growth have taken a hit.

Paul Dales, of Capital Economics, said that the survey was "the first to signal the possibility of a manufacturing recession". A recession in any sector is usually defined as two consecutive quarters of falling output.

The drop in output expectations recorded in the survey was consistent with negative output growth for the sector, he said.

Just three per cent more manufacturers said that they were expecting a rise in output volumes in the coming quarter than said that they were expecting a fall. That balance of +3 compared with a +9 figure recorded in November.

Export orders rose to their strongest state since November 2006, after spending several months in the doldrums.

But the total order books balance fell to +2 per cent compared with +8 per cent the previous month. "This suggests a weakening in domestic demand," the CBI said.

Ross Walker, of RBS, said: "The latest CBI survey provides further evidence that the manufacturing sector has moved beyond its cyclical peak."

In an encouraging signal for the Bank of England, manufacturers' expectations of price increases softened over the month, to a balance of +15 per cent compared with +21 per cent in November.

However, analysts said that the figure was still consistent with increases in output price inflation, as industry attempts to pass on cost pressures from the surging price of raw materials and food.

The CBI dismissed the talk of a recession, saying that the sector was "changing from fifth gear to fourth, certainly not juddering to a halt".

Ian McCafferty, the CBI's chief economic adviser, said: "Even as the domestic market slows, manufacturers are enjoying a period of relatively strong demand from overseas as the pound has been falling against the euro and stimulating trade with the eurozone."

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