Manufacturers’ trade body Make UK has cut its forecast for the sector’s growth for this year and next on the back of falling factory output and economic uncertainty.

It expects output to fall 0.5% this year, down from its June forecast for a 0.3% decline, and says growth will be just 0.5% in 2024.

Verity Davidge, policy director at Make UK, said: “Manufacturers are seeing a very sharp slowdown in activity as the potent cocktail of rising interest rates, cost of living and slowing overseas markets bites hard.”

Manufacturers reported the steepest fall in hiring plans since the EU referendum in 2016, and the lowest order growth since Q4 2020.

Bank of England interest rate setters face a growing dilemma as inflation and the potential for recession threaten to conflate and make Thursday’s decision a close one to call.

UK growth slid in July, though the Treasury said strikes and wet weather were to blame. Even so, worries over recession have re-emerged as Insolvencies are above pre-pandemic levels and unemployment has accelerated much more quickly than expected.

A deciding factor may come 24 hours before the Bank’s monetary policy committee decides whether to hike the interest rate for the 15th consecutive month, taking it to 5.5%.

Inflation figures from the Office for National Statistics on Wednesday are expected to show the cost of living has ticked back up to 7% in August from 6.8% in July because of rising petrol prices.

Financial markets do believe that a further rise in the base rate will be the last for this year and that rates will start to fall next year, though perhaps not until the second half.

On the stock market, the mood among investors was brightened by better news from China and the European Central Bank signalling an end to its interest rate rising cycle.