The majority of Britain's manufacturers think policy incentives in other major economies are making UK investments harder to justify, according to a new survey by industry body Make UK.
Of the companies surveyed, 72.7% said they felt measures such as the US Inflation Reduction Act and similar European measures had created a challenging investment environment.
The fresh data also showed that 74% said a lack of policy consistency in the UK is damaging efforts to build a consistent business environment.
More than half of companies have withheld investment in the last two years as a result of the uncertain business environment, despite having investment capital accessible, the survey found.
Meanwhile, industry output has ground to a halt.
The positive picture of the first half of the year has now gone sharply into reverse, according to Make UK, with recruitment plans ceasing and orders slowing.
As a result, Make UK cut its manufacturing growth forecast for 2023 with output set to fall this year, while the forecast for next year is within the margins of no growth at all.
“Manufacturers are seeing a very sharp slowdown in activity as the potent cocktail of rising interest rates, cost of living and slowing overseas markets bites hard," said Verity Davidge, policy director at Make UK.
"As a result, they are now battening down the hatches in the expectation that the next year is going to be anaemic at best and, potentially, much harder."
Davidge added that the chancellor Jeremy Hunt should look to bring forward targeted measures in his Autumn statement.
The news comes amid gloomy UK data regarding growth. The ONS said this week that the UK's economy is in contraction and had shrunk at the quickest pace in seven months.