Research among more than 230 firms by the EEF manufacturers’ organisation and Santander bank also showed rising fears of the impact of global trade tensions.
Only a third of companies plan to increase their investment in plant and machinery, the lowest figure in the survey’s five-year history.
This sentiment is especially pronounced for small companies, where three quarters of companies are refraining from increasing their investment in the coming two years.
EEF chief economist Lee Hopley said: “These figures put into sharp focus the widening gap between the investment manufacturers know they need to make to capitalise on growth opportunities and to adopt productivity-enhancing technologies and the hurdles they face in getting those decisions over the line.
“The upcoming Budget needs to take some bold steps to support companies in addressing this shortfall until the clouds of uncertainty start to lift.”
Paul Brooks, of Santander, said: “It is understandable given the current uncertain political and economic conditions in the UK that manufacturers are being cautious in their key investment decisions.”