Manufacturing output and domestic orders saw firm growth in the past quarter but a "cloud of uncertainty" over Brexit has pushed business confidence among manufacturers to the lowest point since 2009 while the outlook for demand at home and abroad hit a four-year low, according to new research.
The Confederation of British Industry's Industrial Trends Survey shows that after a slowdown at the end of 2015, which spilled over into the first half of this year, manufacturers recorded a solid recovery in the three months to July.
Output hit a two-year high with 30 per cent of 506 firms surveyed saying it had risen in the past three months, while 14 per cent said it was down.
Meanwhile, 32 per cent reported an increase in total orders. Another 23 per cent reported a decrease. The resulting balance on nine per cent was the highest since July 2015.
The balance for new domestic orders was the highest since then at 11 per cent, although export orders were broadly flat.
Nevertheless, 27 per cent of firms said employment numbers were up, while 18 per cent said they were down, giving a balance of eight per cent - above the survey's long-run average.
However, only five per cent of firms said they were more optimistic about the general business situation than three months ago, while 52 per cent were less optimistic. The balance of 47 per cent was the lowest reading since January 2009 at the height of the financial crisis.
Investment intentions compared with the previous 12 months deteriorated, with sharp falls in planned spending for both buildings and plant and machinery.
The number of firms citing political and economic conditions abroad as a constraint on export orders hit a 33-year high of 52 per cent.
Total new orders for the coming quarter are expected to be flat, the worst forecast since January 2012.
Rain Newton-Smith, CBI chief economist, said: "Manufacturers picked up the pace over the second quarter, with output growing solidly. We're also seeing encouraging signs of a boost to export competitiveness from a weaker sterling.
"But it's clear that a cloud of uncertainty is hovering over industry, post-Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans.
"So it's important now for the new Government to steady the ship with a plan, and a clear timetable, for negotiating the UK's relationship with the EU. This, along with a renewed focus on industrial strategy, will help give firms the confidence they need to grow and create jobs."