FRESH job losses in manufacturing firms were predicted as higher energy prices and falling demand made life tough for the industry.

Small and medium-sized companies predicted that worse was to come, with just one in eight more optimistic about the business outlook than earlier in the year.

A survey of 654 firms by the CBI showed that one in 10 expected to cut jobs in the next few months.

Orders fell for the third successive quarter and firms did not not expect any improvement in the final three months of the year.

Falling output and higher energy bills pushed up costs, while prices remained virtually unchanged.

One in four of those questioned said they planned less investment in buildings.

Hugh Morgan-Williams of the CBI said: "Small and medium-sized manufacturers (SMEs) are a good barometer of future economic progress.

"They are the first to feel the effects of an ill wind and the last to recover. Higher production costs as a result of rising charges for energy, oil and raw materials, coupled with stagnant output prices mean that smaller manufacturers are being squeezed at both ends.

"As the consumer spending slowdown filters into other areas of the economy SME manufacturers have now experienced three consecutive quarters of falling output and are technically in recession.

"Worryingly, few firms are forecasting any signs of recovery, while one in three are more pessimistic about the coming 12 months than in the summer."