THE beleaguered state of the UK manufacturing sector was brought home last night by figures showing the sharpest drop in output for nearly three years.

Economists expressed their shock at the performance, which involved a 1.6 per cent fall in production between February and March.

That was the worst figure since June 2002, when output declined by 5.8 per cent in a month affected by Jubilee anniversary celebrations.

Beyond that, output had not fallen by as much since January 1995, when there was a 2.3 per cent fall.

The figure surprised the City, as most analysts had been forecasting a small rise in output in March.

Investec chief economist Philip Shaw described the performance as "appalling" and said he was likely to revise his forecast for GDP growth to 2.6 per cent, from 2.7 per cent.

Chancellor Gordon Brown is hoping for GDP of between three per cent and 3.5 per cent this year.

Mr Shaw said the impact of an early Easter may have been a factor in the weakness, meaning that there remained a chance of a rebound in figures for last month.

He said: "Surveys of late have been suggesting toughening conditions in the sector, but nothing to imply a fall of this scale. However, we won't be too hasty to condemn the sector until we have seen April's number."

The figures from the Office for National Statistics (ONS) emerged only hours before the Bank of England's monetary policy committee was due to announce its latest decision on interest rates.

The ONS said factory gate prices rose by 0.7 per cent last month - more than City expectations - and by 3.2 per cent during the past 12 months. Input prices were higher than forecasted at 0.3 per cent last month.