Britain’s manufacturing output suffered its sharpest drop in the first three months of this year since the CBI’s records began in 1975. Industrial companies also reported their lowest volume of orders for nearly 30 years.

In the final three months of last year there were 51,000 job losses in manufacturing. The CBI expects the final total for that quarter to rise to 62,000 and forecasts that a further 51,000 cuts will be made in the three months to the end of June.

However, the employers’ organisation said there were signs that the worst of the slump in industry may have passed. Despite the expectation of more production cuts in manufacturing as companies try to use up existing stocks, the CBI said that the fall in business sentiment has slowed for the first time in seven quarters.

The balance of companies reporting an increase in output compared with those reporting a decrease narrowed from 53 per cent to 32 per cent. That was the sharpest turnaround ever recorded by the CBI.

Business sentiment, which looks ahead, improved to minus 40 per cent, a rate that changed markedly from the previous quarter, when it was 64 per cent. It is the first time in 21 months that the fall in sentiment has slowed.

John Cridland, the deputy director-general of the CBI, said: “It has been a very tough quarter for manufacturers, but the best that we can say is that the rate of decline may be slowing a bit.”

Ian McCafferty, the CBI’s chief economist, said: “The first quarter of 2009 was extremely tough for UK manufacturers, but this survey shows that companies hope that the worst may be behind them, with the pace of decline slowing.”

He said that although job losses had been heavy and training and investment had been pared back, “companies are hopeful that the pace of decline in manufacturing activity will moderate slightly in the next three months”. Companies expected domestic orders and exports to continue to fall, but again at a more moderate rate than has been experienced recently.

The CBI’s survey of industrial trends chimes with post-Budget comments from David Blanchflower, one of the Bank of England’s arch doves. He said that he saw tentative signs of a turnaround.

Although manufacturers have aggressively destocked – with many doing it as a route to finance – Mr McCafferty said that stock levels were still too high for likely demand. More production cuts would therefore follow in the coming months.

Amid large-scale job cuts in manufacturing, especially in high-profile areas such as the motor industry, the CBI found that employment had fallen at its sharpest rate – minus 48 per cent – since October 1991.

Manufacturers said that they expected to continue making job cuts but that the pace would slow a little in the next quarter to about minus 39 per cent.

The CBI said that it did not expect recovery in the economy until the second quarter of next year. It repeated its criticism of the Chancellor’s growth projections made in his Budget speech on Wednesday.

Mr Cridland said that the growth targets, which anticipate recovery later this year and then growth next year, were improbable.

The slump in output in the CBI survey comes as car production figures today are expected to show another sharp decline for March as all carmakers continue short-time working with shorter working weeks and temporary shutdowns. Car manufacturing in February plunged by 59 per cent and production of vans and commercial vehicles fell by 71 per cent.

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