Britain needs to do more to boost manufacturing, even to the extent of formulating some kind of industrial policy, the Director-General of the CBI has warned.

Richard Lambert told The Times that there was an urgent need to bolster manufacturing ahead of major infrastructure work and as the economic slowdown puts more pressure on industry.

The issue will dominate the CBI's conference in November amid concern from large manufacturers such as Rolls-Royce that Britain is not doing enough to protect its manufacturing. The Government is expected to publish its next plans for manufacturing in the near future.

Mr Lambert said: “Are we right to be the only industrial country not to have anything in terms of industrial policy?”

The CBI chief said that although the old-fashioned industrial policy of picking winners was no longer appropriate, neither was a lack of recognition for manufacturing: “There was a feeling that we were in a post-industrial society, but that is nonsense. Britain is still the sixth in the world for high added-value manufacturing.”

Mr Lambert wants the Government and business to do more to keep key manufacturing bases in Britain. He asked: “Was it sensible of us to sell Westinghouse to Toshiba just when we were on the brink of the biggest nuclear build programme?”

The CBI chief said that he had been persuaded by arguments from Sir John Rose, the Rolls-Royce chief executive, that a better manufacturing base could promote social cohesion because it offers more jobs with mid-level salaries than the extremes generated by the City. Mr Lambert also fears that social cohesion may be compromised if Britain has to import large numbers of specialist workers, such as the tens of thousands of engineers expected to be needed for Crossrail, rather than find home-grown workers.

To help to boost manufacturing, Mr Lambert believes that international companies looking to take on large projects in Britain should have some operations here to build up a base, rather than just selling kit into the UK. But he emphasised that there should not be too much interference in the market. “We should be thinking about how the markets work ... for example the fact that it is easier for a Japanese company to take over Pilkington than it is the other way around.”

He also believes that tax policy should change to encourage companies to remain in Britain as more look to relocate. Mr Lambert will also call for more government money for the Technology Strategy Board, which promotes innovation in industry.

Mr Lambert's comments came as manufacturing activity fell for the fourth consecutive month as demand from home and abroad fell, raising fears that the economy is heading towards recession. The CIPS/Markit Purchasing Managers' survey of activity in the manufacturing sector, which accounts for about 15 per cent of the British economy, was 45.9 in August, against 44.1 in July. Any figure below 50 indicates that activity is falling.

Manufacturers reported job losses for the fifth month in a row as the employment index rose slightly to 43.8, from July's record low of 43.4.

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