Manufacturing is forecast to contract by 10% this year as companies continue to struggle with the impact of the virus crisis, according to a new report.

Make UK said its research suggested that just under a fifth of companies were operating at full capacity.

Investment plans have been cut as firms battle to stay afloat, said the manufacturers’ organisation.

Its survey of 364 firms suggested there had been been improvements in output and orders from the historic lows of earlier this year.

A downward trend on cutbacks is following a similar pattern to that seen during the financial crisis a decade ago, said the report.

Make UK warned of further damage to investment prospects because of the ongoing pandemic and “very real” possibility of a no-deal Brexit.

Stephen Phipson, chief executive of Make UK, said: “Manufacturing has begun to climb away from the abyss that it stared into earlier in the year, but it is going to be a long haul back towards normal trading conditions, with talk of a V-shaped recovery nothing more than fanciful.

“Having emerged from three years of political uncertainty at the end of last year, increasing talk of a final ‘no deal’ exit from the EU would be a final nail in the coffin for many companies.

“If we are to avoid this and, the avalanche of job losses that would follow in already hard-hit areas and sectors, it is essential that the first step towards a fuller recovery is provided by a comprehensive trade agreement with the EU.”

Tom Lawton of business advisory firm BDO, which helped with the research, added: “While the manufacturing industry has managed to claw back some lost ground from a dismal second quarter, the continued collapse in investment intentions is a real cause for concern.”