The manufacturing sector is facing its toughest conditions since Britain's last recession in 1992 after activity in September fell for a fifth consecutive month when output, new orders and employment shrunk at record rates.

A key survey by the Chartered Institute of Purchasing and Supply (CIPS), which measures the health of the manufacturing sector, fell to a record low of 41.0 in September.

Today's data follow yesterday's confirmation by the Office for National Statistics that the British economy had failed to grow in the second quarter, raising fears of contraction in the third quarter and the beginning of recession in the UK.

CIPS said today that September data indicate that "UK manufacturers are currently facing the toughest operating conditions" since the survey began in 1992.

Domestic demand for manufacturers' goods was particularly affected by the downturn in the credit, housing and construction markets, which led to an increase in customers cancelling or delaying orders.

At the same time, new export business dampened overseas business, with activity in September falling to a seven-year low.

The CIPS survey also revealed that employment levels are suffering because of the slowdown in manufacturing. The employment index showed a reading of 40.1, indicating that companies are laying off staff and choosing not to replace departing workers.

On the upside, the price of producing goods fell in September from a reading of 78.1 in August to 73.7 as the declining price of oil and commodities fed though to input cost inflation. However, input inflation remains high and above the survey's average.

Howard Archer, chief UK and European economist at Global Insight, described the figures as “simply awful.”

He said: "Weakening productivity in the first half of 2008 is yet more disappointing news for Gordon Brown and Alistair Darling, as the Government has placed high importance on boosting UK productivity."

Mr Archer added: "Clearly, the further marked slowdown in productivity in the second quarter of 2008 was influenced significantly by GDP only stagnating as well as by companies holding on to workers.

"Nevertheless, the marked retreat in productivity over the past year raises the question as to whether the overall improvement in 2006 and the first half of 2007 was largely a cyclical pick-up, rather than the result of some structural improvement helped by streamlining in the manufacturing sector in particular."

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