GLOOM descended on the manufacturing sector after new figures showed UK factory output declining in October.

The Office for National Statistics (ONS) said output fell by 0.1 per cent between September and October, confounding economists who had predicted a 0.3 per cent rise.

The figures are in sharp contrast to a series of upbeat industry surveys and dampens hopes that the UK economy had regained momentum.

Bank of England Governor Mervyn King told MPs last week that a more optimistic picture of the economy was emerging in the fourth quarter, especially as business surveys had not shown a fall in manufacturing.

According to the ONS, the decline in October was led by producers of metal products scaling back output due to the high cost of raw materials, such as steel.

Industrial production, which includes oil and gas, fell 1.7 per cent in the past quarter because of maintenance work on North Sea rigs leading to a lower output of crude.

Steve Radley, chief economist of The Engineering Employers Federation (EEF), said: "Together with rapidly eroding business confidence, they indicate that we can no longer take a strong recovery in manufacturing for granted and are heading for tougher times."

The EEF urged the Bank of England to leave interest rates on hold into the New Year as its surveyshowed confidence about future business conditions dropping sharply.

It said the rising raw material and energy costs, combined with the impact on exports of a weak dollar and poorer conditions in major European markets were taking their toll.

EEF regional director Alan Hall said: "A wide range of cost pressures are now beginning to bear down on manufacturers and suggest that, after the calmer waters they have enjoyed over the past year, there may now be storm clouds on the horizon.

"The bank should leave rates on hold until well into the New Year and, if the current dip in confidence translates into a renewed manufacturing downturn, respond by cutting rates."

The fourth-quarter survey, published by EEF in conjunction with RSM Robson Rhodes, showed that, in line with other survey data, the results for output and orders remained positive over the past three months.

Two-fifths of companies reported an increase, against only 20 per cent reporting a decline, figures on a par with the previous quarter

All sectors saw growth for the third consecutive quarter, with electronics and electrical equipment especially strong.

Basic metals and metal products said that demand remained firm, both at home and abroad, although output in transport sectors was more disappointing.

In contrast to the third quarter, the regional picture was more uneven.

Yorkshire and Humberside continued to report strong growth, but the North of England saw conditions deteriorate following a sluggish performance by the automotive sector.

* SOARING oil prices and tough competition have left businesses downbeat about their future, despite rising orders and output, according to a survey published today.

The Confederation of British Industry (CBI) said companies in every region of the UK are less optimistic than they were six months ago.

Increases in the costs of energy and pensions meant profit margins fell in every region apart from the North-East, according to the twice-yearly survey, conducted with regional development agencies.

More than a quarter of the companies blamed inadequate Government support for holding back growth, while finance shortages and high labour costs also took their toll.

The findings come despite higher orders, which drove up employment. London and the South-East saw the biggest rise in staff numbers, while the North-East and South-East were the most optimistic about employment prospects for the year ahead.