The World Trade Organisation also forecasts a sharp contraction in world trade this year and no return to sustained global growth until 2010

Britain’s leading employers’ organisation warned today that manufacturing faces a long, hard slog out of the steepest recession since the second world war.

Amid signs that factory output and order books are recovering only slowly from the shock to the economy caused by last autumn’s financial crisis, the CBI said a return to growth could “be some way off”.

The organisation’s caution on the economy came as a leading thinktank warned that the UK will not fully recover from the recession until 2014. The National Institute of Economic and Social Research (NIESR) also warned that house prices will keep falling for another three years.

In its quarterly health check of industry released today, the CBI found that 43% of firms reported a fall in output in the three months to July while only 12% said business had been brisker. The balance of minus 31 points represented a slower rate of decline than in April, when it stood at minus 53 points. Faced with a hostile domestic and overseas business climate, firms were slashing both jobs and investment plans, the survey said.

Ian McCafferty, CBI chief economist, said: “These figures reinforce our view that the road out of recession will be long and slow.”

With a report from the World Trade Organisation out today forecasting a sharp contraction in trade this year and no return to sustained global growth until next year, the CBI said the performance of British exports had been “disappointing”.

UK firms have been helped by a 20% fall in the value of the pound over the past two years, but this has been offset by the weakness of demand, especially in Europe, which accounts for half of Britain’s manufactured exports. A balance of minus 38 percentage points of firms reported that export orders were down over the last three months, little changed from the minus 39% in the previous quarter.

“The further sharp decline in export orders is of particular concern as we are not seeing much of a boost from the relative weakness of sterling,” McCafferty said. He added that although factories had run down their inventories of unsold goods, firms still planned another bout of aggressive de-stocking over the coming months.

On a more positive note, the employers’ organisation said business confidence was at its least negative since the early stages of the credit crunch in October 2007 while constraints on credit availability had eased back to the levels before the collapse of Lehman Brothers last September brought the global financial system to the brink of collapse.

Pascal Lamy, the director-general of the WTO, said today that in the past few months trade had “contracted more than at any time since the 1930s, reflecting the dramatic global economic downturn provoked in the first instance by the collapse of major financial institutions.

“Trade growth will be strongly negative this year and we are unlikely to see sustained economic growth until 2010.”

The WTO said that the weakness of the European economy would mean China overtaking Germany this year to become the world’s biggest exporter.