UK manufacturers are facing their toughest trading conditions for 20 years, according to EEF’s recent fourth quarter trends survey.

Forecasts for the coming year predict a five per cent drop in manufacturing.

EEF warned that companies will have to prepare for a sustained downturn in 2009 and urged the Bank of England to make a further full-point cut to interest rates.

Steve Radley, chief economist at EEF, said: ‘Manufacturers have made substantial progress in recent years in improving their performance but the next 12 months are set to be some of the most difficult in two decades.

'What marks this downturn out from others is the alarming rate at which conditions have deteriorated through the autumn due to the problems in the financial markets.

'It is now imperative that the government and the Bank of England continue to pull on every lever at their disposal.’

All nine regions of the UK reported a slowdown in orders, with only one region, the south-west, posting a positive output balance.

In England, the region worst affected is the West Midlands following the weakening of the automotive sector, where 30 per cent of companies reported a fall.

Meanwhile, the latest figures announced by Scottish Engineering reveal that the financial crisis has caught up with Scotland’s engineering firms.

Reporting on the three months to November, Scottish Engineering announced a fall in order intake for the second consecutive quarter and reduction in output volumes for the first time in five years.

Optimism among firms is at a seven-year low with small and medium enterprises finding it particularly difficult to gain banking support.

The drop in confidence has resulted in a freeze on recruitment activities, with a large number of companies cutting staff.

Scottish Engineering predicts that these trends will continue into the current quarter, but believes that firms are in a strong position to weather the recession due to previous investment in business improvement schemes.

Peter Hughes, chief executive of Scottish Engineering, said: ‘I detect a growing sense of anger from many of our manufacturing companies who are being hit by ever-increasing bank charges as a result of the global credit crunch.

'It is galling to find that manufacturing companies are having to pick up the tab following the dramatic failure of our banking system and the bodies that should have been there to regulate it more appropriately.’