THE manufacturing sector is continuing to deteriorate, experts have warned, after it emerged that factory output had fallen for the first time in more than two years.

Economists said the figures for last month from the Chartered Institute of Purchasing and Supply (CIPS) confirmed a sustained industry downturn, which they believed increased the chances of an interest rate cut this year.

As well as the contraction in manufacturing production, CIPS said its monthly barometer of all activity in the sector revealed the worst figure for two years.

CIPS said recent strong figures from the services sector were likely to support economic growth, but the Bank of England's monetary policy committee (MPC) may be more likely to cut interest rates if the manufacturing decline continued.

He said: "If manufacturing is heading for a renewed slowdown, it significantly raises the possibility that the MPC could cut rates this year."

Interest rates have remained static at 4.75 per cent for nine months and many experts are expecting no change for the rest of the year.

The survey also showed output prices fell for the first time in 20 months.

Vicky Redwood, of Capital Economics, said some of the weakness could be due to the closure of car maker MG Rover, as this was the first full month since production stopped.

But she said: "As this survey has been on a downward trend since the summer, it is more likely to be the result of weakening activity, both at home and overseas."

She said she believed the MPC would vote for a cut in rates soon.