Manufacturing activity contracted for the first time in almost two years in April after the collapse of MG Rover dealt another blow to companies already struggling to drum up new business.
The Chartered Institute of Purchasing and Supply/NTC Research said yesterday its purchasing managers' index fell to 49.5 last month - its lowest reading since June 2003 and below expectations of 51.5 - from 51.6 in March.
Any reading above 50.0 indicates expansion, while anything below that level means contraction.
The figures boosted expectations that the Bank of England will leave interest rates steady at 4.75 per cent next week for the ninth month running and heightened anxiety that the fragile recovery in manufacturing is running out of steam.
"The results are disappointing. The main index, falling to its lowest level in almost two years in tandem with surveys from the US and eurozone, is providing evidence of a soft spot in the global economy," said Philip Shaw, economist at Investec.
Similar surveys published on Monday showed that manufacturing in the eurozone contracted for the first time in nearly two years while manufacturing growth in the US slowed to its weakest pace in almost two years.
Short sterling interest rate futures rallied strongly after the British figures were released, reflecting reduced chances that policymakers will put up rates again later this year.
The drop in manufacturing activity was mainly due to a shortfall in new orders leading to a slowdown in production.
MG Rover, the 100-year old carmaker which once produced the Mini and Land Rover, went bankrupt last month after a deal with a Chinese company fell through.
"There is some indication that this is partly due to the collapse of Rover which has hit suppliers really hard," said Chris Williamson of NTC Research, which compiles the survey.
High oil, steel and plastic prices continued to push up input costs but not as quickly as in previous months. The input price index fell to its lowest level since February 2004 at 62.5.
But output price growth picked up to a faster, although still modest, pace, with the index rising to 51.6 from 50.9 in March.
New export orders eased for the fourth straight month at 49.2, mainly due to stronger competition from China and Japan along with weaker demand from the eurozone.
British manufacturing employment also declined in April at 47.3, after showing a modest increase in March at 51.6 for the first time in four months.