Showing the biggest drop in almost two years, the CBI Industrial Trends Survey cast a pessimistic shadow on the UK manufacturing sector.  Saddled with slowing orders on concerns of a European stall, UK manufacturers are the most downcast on the state of the industry since mid 2009.

According to the survey released by the Confederation of British Industry, a net 18 firms are experiencing a contraction in their order streams.  This compares to the September reading of a net 9 firms showing contractionary conditions.  The report’s surprising drop is likely to be followed up by further output and production cuts by UK companies, expecting a slower than expected pace of growth in the next couple of quarters.  This will likely complicate matters for the country’s current administration – which has placed higher austerity measures on consumers in recent years.

However, today’s report does justify the Bank of England’s decision to boost the current asset purchase facility in the beginning of October.  It also may validate potential plans to lower rates further in the economy as Governor Mervyn King searches for ways to boost economic growth.

The GBPUSD currency pair fell in the hours following the CBI revelation, dropping to the session low of 1.5970 from 1.6003 before the report.  The currency pair is currently trading at 1.5988.