MANUFACTURING firms in the UK are facing "rapidly increasing" challenges for trade from eastern economies such as China, a new report revealed.

A survey of 500 companies showed that almost half believed more of their production will take place outside this country in the next five years, with a further one in 20 considering outsourcing work.

The Engineering Employers Federation said its survey raised concerns that the efforts of UK manufacturers to reduce costs and become more innovative were being undermined by "damaging" competitiveness indicators in this country, such as increased levels of regulation.

Manufacturers were negative about transport, planning, business costs, taxation and regulation.

The biggest overseas threat was coming from China, Central and Eastern Europe and India. Firms were outsourcing work abroad to cut costs.

while many believed India had a better business culture than the European Union.

EEF director-general Martin Temple said: "These results prove that manufacturers are well placed to succeed in an increasingly competitive environment by adopting strategies which focus on adding value in the UK, whilst making best use of the options that low-cost manufacture overseas gives them."

"However, we must ensure that companies who go down this route are doing so as part of a long-term business plan and not because they perceive the UK as a poor location for manufacturing.

"The figures also provide a stark warning that the low-cost economies of the east are arriving like an express train.

"If UK and EU policymakers do not commit to measures that will free up enterprise and make their economies more dynamic, there is a grave danger the Eurozone will be left standing on the platform."