The CBI’s Quarterly Industrial Trends Survey for the three months to October has highlighted a fall in manufacturing production – the first decline in the last two years.

However, despite this, companies have signalled that they expect overall conditions to stabilise over the next quarter.

Meanwhile, new export orders fell at the fastest rate in three years, possibly down to the continued strength of Sterling. Total new domestic orders were down over the quarter for the first time since April 2013 and manufacturers’ optimism about both their business situation and export prospects for the year ahead fell to the greatest extent since October 2012, the study found.

Total unit costs stabilised over the three months to October, but output prices fell further and are expected to do so again over the next three months.

463 manufacturers surveyed predict that overall manufacturing conditions will stabilise in the next three months, with a small rise in output. However, export new orders are expected to edge down slightly further.

Firms highlighted concerns about political and economic conditions abroad and their impact on export orders. Worries about price competition rose and the number of manufacturers citing uncertainty about demand as a constraint on investment was the highest in two years.

The CBI’s director of economics, Rain Newton-Smith, said: “Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth. But now they’re also facing pressure back home as domestic demand is easing. While on balance firms expect orders to stabilise next quarter, it’s disappointing that firms are having to scale back their investment in innovation.

“Over the longer term, strong investment in innovation and skills is vital to boosting our performance in exports, enhancing our manufacturing growth and improving productivity. It’s crucial that Government acts decisively to protect spending in these areas as part of the upcoming Comprehensive Spending Review.”

Investment intentions for the year ahead for ‘tangibles’ - buildings and plant and machinery - remained unchanged from October. However, intentions for investment in ‘intangibles’, such as training and product and process innovation, fell to their lowest levels since July 2011 and July 2009 respectively.