Car production suffered its biggest fall in nearly two years last month, new data showed yesterday. The Office for National Statistics said output tumbled a seasonally adjusted 4.2% in the three months to October from the previous three months, the biggest drop since January 2003. Production was also 5.1% lower than a year earlier.

Output for the home market fell 15.6% from the previous three months, also the biggest fall since January last year. Production for export slipped just 1.1% from the previous three months and 0.3% from a year ago.

One unnamed large manufacturer closed down completely for a week during October, resulting in production of 4,000 fewer cars, the ONS said. Industry sources suggested it might have been Jaguar.

Although monthly production figures tend to be volatile, analysts said that car production was flagging along with lower demand from buyers.

"On the demand side we've seen pretty weak sales in the summer and into the autumn, so I suspect that there has been some kind of feedthrough effect," said Alan Castle of Lehman Brothers in London.

But Britain's motor industry is upbeat about its prospects over the next five years despite uncertainties over whether 2004 will match last year's record performance, the Society of Motor Manufacturers and Traders (SMMT) said.

Four out of five firms are expecting to grow over the period and the industry believes it has improved its competitiveness compared with its European peers. About 84% of companies believe they can match their European rivals, compared with just 70% a year ago.

However, it remains concerned about the burden of regulation and wants the government to do more to help manufacturing industry.

Attracting workers with the right level of skills is also becoming an increasing problem, with two-thirds of firms taking part in a Mori survey for the SMMT revealing recruitment problems.

SMMT chief executive Christopher Macgowan said: "We are under no illusions about the challenges facing the industry. Nevertheless, this second Mori survey of senior people shows that the industry is in more optimistic mood than it was a year ago.

"Better quality training, the importance of research and development and improving competitiveness; these familiar themes emerge from the survey this year. However, initiatives like the Automotive Academy and Industry Forum training are now in place to address some of these issues. In supporting these programmes, as well as by working more closely with government, I am confident this great industry will continue to grow."

The report, which surveyed 80 companies employing more than 100,000 workers, concludes that Britain retains a successful motor industry, with an established reputation for specialist engineering and design, and with most leading automotive manufacturing having a UK presence.