Export orders for British-made goods fell last month at the fastest pace in a decade, undermining forecasts that the manufacturing sector could be over the worst of the recession.

A total of 58 per cent of factories said that overseas order books were below normal this month, while only 6 per cent said they were above normal, according to the CBI’s monthly industrial trends survey. The resulting balance of -52 is the worst since 1998.

Exporters are being hit by a slowdown in overseas demand as the global economic conditions deteriorate. This slowdown has even outweighed the benefit of the recent weakness in sterling, which served to make the price of UK-made goods more attrractive to foreign buyers.

There are fears that the rally in sterling could exacerbate this slowdown in export orders as overseas buyers balk at dearer UK-made items.

Ian McCafferty, chief economic adviser at the CBI, said: “Export orders are no better than they were a few months ago, reflecting the continued weakness of overseas demand for UK-made goods. As such, conditions for UK manufacturers remain challenging with volumes of total orders still at very weak levels.”

However, the CBI said that total orders have picked up in June, suggesting that domestic demand could be stabilising a little. The gauge of orders rose to -51 from -56, but this was still less than the pick-up expected by economists, who forecast a rise to -45.

The worse than expected figures cast doubt whether April’s pick-up in industrial production, the first rise for 14 months, is sustainable. Analysts said that many factories have raised production to replace stocks that they have run down during the downturn. But unless underlying demand picks up, it will be difficult for them to continue at higher levels of production.

Mr McCafferty said: “Manufacturing firms do expect output to fall at a much slower pace compared with the beginning of the year, as the drastic action they have taken to reduce stocks appears to be paying off. Although the stock position somewhat improved on previous months, stock levels remain high relative to demand.” About 17 per cent more factories expect output to fall rather than rise in the coming months, unchanged from May, but this was against January’s low of -43.

The news came as it emerged that many companies are still struggling to access credit despite the huge stimulus from the Bank of England designed to kick-start lending. Recent figures showed net lending to private non-financial corporations fell by £5.4 billion in April, the biggest fall since June 2000. The Bank said that conditions had deteriorated further in May.

The Bank of England’s lending panel, made up of the country’s six biggest lenders, including HSBC, Lloyds Banking Group and Banco Santander, said “the value of gross new corporate loan facilities fell slightly in May.”

Policymakers will be concerned that lending to cash-starved companies is getting weaker despite record low interest rates and a £125 billion asset-buying programme aimed at injecting credit directly into the economy. Economists said that the Bank may have to top up its quantitative easing scheme to the maximum allowed of £150 billion to unclog the lending markets.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The figures suggest various policy measures undertaken by both the Bank of England and the Government to boost bank lending are still to have a major impact. This is worrying for recovery prospects.”

The lenders said that the weakness of the lending data was caused by a lack of demand as companies cut back on investments.

The Bank’s report said: “Demand for credit continues to be constrained by weak investment intentions and businesses’ desire to reduce debt.”

But this was contradicted by a report from the Bank’s regional agents that showed that a growing number of companies that wanted access to credit were finding it more difficult and expensive.

More than 80 per cent of companies questioned by the Bank’s agents in June said external finance had become more expensive and harder to obtain over the past year, against 60 per cent in September last year.

• Mortgage lending fell again in May as fewer homeowners renegotiated their home loans. Gross mortgage lending fell 2 per cent to £10.3 billion in May, down 2 per cent from £10.5 billion in April, figures from the Council of Mortgage Lenders (CML) showed. This was 58 per cent lower than in May last year.

• The CML said people stayed on cheaper standard variable rate loans when their mortgage deals ended, rather than take out a new, more expensive, fixed rate or variable rate deal.

• Several big lenders raised the cost of their fixed rate loans in the past week, despite the fact that the Bank of England base rate has not risen from its 0.5 per cent low.

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