British factory orders fell at their fastest pace in a year in October and firms expect to cut output, a survey by a leading business lobby group showed on Wednesday, reinforcing fears the economy may tip back into recession.

The Confederation of British Industry blamed the sharp fall in sentiment in its latest Industrial Trends survey on concerns about the euro zone debt crisis, and said it expected growth to be depressed in the final three months of this year.

Worries about the impact of a darkening economic outlook prompted the Bank of England to launch a second round of quantitative easing this month, pumping an additional 75 billion pounds into the economy to support growth.

The survey's total order book balance fell to -18 this month from -9 in September, the lowest since October 2010 and confounding expectations for a steady reading of -9.

And companies expected to reduce output in the coming three months, with the output expectations balance falling to -11 in October from +9 in September -- its lowest since July 2009, when Britain was just pulling out of recession.

The CBI survey fuels concern that the UK economy is in serious danger of contracting in the fourth quarter. It is blatantly evident that manufacturers are being hit hard by domestic and international headwinds, said Howard Archer, economist at Global Insight.

Bank of England chief economist Spencer Dale said in a newspaper interview published on Wednesday that uncertainties about the global economy has led companies to hold back investment and consumers to cut spending.

But we can only do so much to support growth in the UK when so much of what is affecting our economy is what is happening with the rest of the world, he said.

European leaders meet later on Wednesday, to try to find a comprehensive solution for the euro zone's debt crisis.


Additional quarterly data showed firms' sentiment plunged in October, with the balance measuring optimism about the current business situation falling to -30 from -16, its lowest since April 2009 when Britain was still in recession.

And firms expected output and orders in the coming three months to fall at their sharpest pace since July 2009.

Sentiment has deteriorated sharply, and firms expect sizeable falls in activity over the next three months, said CBI chief economic advisor Ian McCafferty.

A credible solution ... for the euro zone crisis is very important, not only to manufacturers but to the economy as a whole. That's the predominant factor driving sentiment, he told reporters.

McCafferty said he expects manufacturing output to have risen by 0.2 percent in the third quarter but to fall by 0.6 percent in the final three months of this year.

The lobby group also expects it will have to downgrade its forecast for British GDP growth for next year from the 2.2. percent it predicted in August, he added.

Bank of England policymaker Martin Weale said earlier this week he would not be surprised to see a decline in output in the fourth quarter.

In a welcome piece of news for the central bank, a balance of only 1 percent of manufacturers expected to raise domestic prices over the next three months -- the lowest in almost 2 years.

This will reinforce belief within the Bank of England that consumer price inflation will head down sharply in 2012, Archer said.

British private sector wage deals showed a 2.6 percent increase in the three months to September, lagging well behind the inflation rate of 5.2 percent, while the pay of most public sector workers remained frozen, a report from Thomson Reuters' Incomes Data Services (IDS) showed.

(Reporting by Fiona Shaikh and Olesya Dmitracova; editing by Anna Willard)