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Britain's manufacturers are losing confidence and job cuts are inevitable unless the government takes action, a report has warned.

The survey from manufacturer's organisation Engineering Employers Federation (EEF) found output held up in the last three months for the 12th consecutive quarter.

However, the balance on orders fell eleven points to its lowest level for three years. This was largely due to fall in domestic orders (down to -13 per cent) as export orders rose from +10 per cent to +18 per cent.

Expectations have fallen and only London, the south east and eastern regions are expecting to increase staffing levels, while investment plans have ground to a halt.

Prices are also set to rise, the survey suggests, although profit margins are deteriorating.

Bob Hale, head of manufacturing at Grant Thornton, said: "UK manufacturing has looked to its export markets for buoyancy this year, but it seems many of the key markets we export to, particularly in Europe, are now coming down with the same malaise afflicting both the US and the UK.

"However, exporting to emerging markets is still seen as an insulating factor and those UK manufacturers that are able should now be exploring these markets with renewed vigour."

The government can help the economy by bringing forward policies that protect companies from the economic downturn, the EEF said.

EEF chief economist, Steve Radley, said: "Given the Bank of England's hands remain tied in the short term, it is now essential the government tackles this turning point for the economy head on. It must avoid adding any further costs to business and put in place policies which will provide the building blocks for an upturn."