Manufacturer's output expectations are the gloomiest in seven years, according to the latest CBI survey.
While 20 per cent of firms in this month's survey expect their volume of output will increase in the coming quarter, 33 per cent expect it will fall.
The resulting balance of -13 per cent is the weakest since December 2001 (-28 per cent), the Confederation of British Industry (CBI) said.
Demand for manufactured goods has also dropped back to its level in April after an early summer spike, with a net 13 per cent of firms reporting order books to be 'below normal' over August.
Companies are still expecting price rises, despite the fall in demand, with a balance of 31 per cent of manufacturer's expecting prices to go up over the next three months.
Ian McCafferty, the CBI's chief economic adviser said: "Manufacturers are becoming more downbeat about forthcoming levels of activity but are still having to raise their prices due to the severity of recent cost increases.
"Domestic conditions remain sluggish and the recent slowdown in the eurozone economies is starting to make conditions tougher for UK manufacturing exporters, although the weaker pound will offer some relief."
The British Chambers of Commerce recently predicted an imminent recession with UK GDP growth forecast to be slightly negative or zero over the next two or three quarters.