Hopes that industry can take up some of the slack in Britain's faltering economy were undercut yesterday as the CBI reported that manufacturers' expectations of their future output fell to a seven-year low this month. The growing gloom among manufacturing groups came as order books declined for a second month in a row and by more than they had expected.

The CBI's gauge of total manufacturing orders fell to minus 13 for this month, from minus 8 in July, while its barometer of expected future output sank from minus 7 to minus 13 - the lowest level since December 2001.

Concern over weakening conditions was fuelled by recent bleak economic news from the eurozone, Britain's biggest export market. Flagging European growth threatens to undermine UK export sales despite the boost to competitiveness from a steep slide in the pound to 11-year lows.

Worries over export prospects were also heightened yesterday as a survey from Euler Hermes, the credit insurer, found that overseas sales sank last month at the fastest pace since November 2001.

On a brighter note, the CBI's survey also offered some modest reassurance for the Bank of England over persistent inflationary pressures in industry as its gauge of pricing trends in manufacturing fell back to plus 31 for this month, down from an 18-year high of plus 34 last month.

Uncertainty over the next move on interest rates was fuelled as it emerged that the Bank's Monetary Policy Committee (MPC) was split three ways this month, for a second month in a row, with one member again voting for an immediate rise. The news that Tim Besley, the MPC's most hardline member, had broken ranks for a second time to press his case for higher rates fuelled City nervousness over rate prospects.

Professor Besley's tough stance, arguing that a rate rise was necessary to reinforce the Bank's inflation-fighting credibility, came after headline inflation surged last month to 4.4 per cent, a 16-year high and more than twice the MPC's target.

The MPC rejected Professor Besley's arguments, with seven of the nine members voting to keep rates at 5 per cent for a fourth month in a row. For the eleventh consecutive month, David Blanchflower, the Bank's arch-dove, backed a quarter-point cut. The unusual three-way split reflects conflicting pressures on the economy, with growth faltering and expected by the Bank to grind to a halt, and inflationary pressures still rising.

The minutes showed that the MPC fretted that both dangers had grown more severe since May. The immediate inflation outlook was worse, while the threat of a deeper slowdown had mounted. The MPC noted, though, that while developments over inflation had been mixed, news on growth prospects had steadily deteriorated.

Worries over the frail state of the public finances were fuelled as official figures showed the Treasury's net borrowing in the first four months of the financial year, from April to July, had soared to £19.1 billion - up from £10.7 billion in the same period last year. Last month there was a net surplus on the public finances of £4.8 billion, but this was sharply lower than the £6.4 billion surplus registered a year ago, the Office for National Statistics reported.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive