BRITISH business confidence fell in the three months to January and manufacturing output grew at its slowest rate since October 1993, the Confederation of British Industry has said. The CBI's quarterly industrial trends survey showed confidence declining for the thirds quarter in a row, dampening hopes of an early pickup in manufacturing this year after a sluggish 1995.

But on the bright side, the survey said manufacturers expected new, orders in both home and foreign markets to pick up in the next four months and prices we're likely to rise only modestly.

"The prospects for improved growth are encouraging and supported by indications that companies have been able to reduce stock levels," said CBI economic affairs committee chairman Mr Andrew Buxton. But he warned that firms, demand and output expectations had proved too optimistic in each of the last three surveys, and that a rebound in growth was not guaranteed.

Analysts said the survey would help Chancellor of the Exchequer Kenneth Clarke defend his decision to cut interest rates by a quarter of a point to 6.25 per cent lasts week. "The overall impression is that the economy is in a sluggish growth mode with limited inflationary pressures, said Mr Jeremy Hawkins, senior economic adviser at Bank of America.

Less encouraging news for the government came in the form of Bank of England money supply figures showing growth in M4, a broad measure made up of bank and building society cash and deposits, surging to 10 per cent in the year to December.