New figures show that Britain's manufacturing sector shrank for a second successive month in November and at its fastest pace since June 2009.
This came as output and orders fell due to weak global demand, fuelling fears Britain faces another recession.
The decline in activity amid a worsening debt crisis in the euro zone forced companies to cut jobs at the fastest rate in more than two years, the purchasing managers' survey showed.
Output also fell last month at the fastest pace in more than two years and new orders contracted for a fifth straight month, although at a slower pace than in October.
The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) fell to 47.6 in November, its lowest level since June 2009, from an upwardly revised 47.8 in October. The index was below the 50 mark that indicates growth in activity for a second month running.
Analysts predicted that the manufacturing sector would continue to contract in the coming months.
"The manufacturing engine has run out of steam," said Rob Dobson, senior economist at Markit.
The Organisation for Economic Co-operation and Development warned this week that Britain was heading for a modest recession early next year while the official forecast for UK economic growth next year was slashed to 0.7% from 2.5%.
Today's survey showed input prices fell in November for the first time since July 2009, offering some relief to manufacturers who raised their own prices by the smallest margin since October 2009.
Dobson said lower inflation may give scope for the Bank of England, which has been purchasing government bonds and other assets to try and stimulate the economy, to provide further stimulus.
UK manufacturing is being hit by weak demand in the euro zone in particular as the currency bloc, Britain's biggest trading partner, has embarked on widespread austerity measures to try and contain its debt crisis.
But the PMI survey showed orders from the US and Asia also declined last month, reflecting weak global demand and rising uncertainty in financial markets.
