PRESSURE for a rise in the cost of borrowing eased yesterday with the release of figures showing a surprise fall in manufacturing output.

Monthly production data showed manufacturing output fell 0.6 per cent between January and February.

The Office of National Statistics (ONS) said declines were seen across the sector, with the most significant falls being seen in paper, printing and publishing.

In the past three months, manufacturing output fell by 0.3 per cent - the first time in a year that the quarterly figure had fallen.

Investec economist David Page blamed weak demand from the eurozone, rather than the strength of sterling, for the weak performance.

He said: "These are very poor numbers and show that the manufacturing sector is still under very intense pressure."

The data is likely to be high on the agenda of the Bank of England's monetary policy committee (MPC) when it meets tomorrow and Thursday to set interest rates.

Analysts were divided on whether interest rates would rise, but Mr Page believed the bank would be keen to avoid putting more pressure on manufacturers.

A study of the services sector is likely to raise the pressure for a no-change decision on interest rates.

The Chartered Institute of Purchasing and Supply (CIPS) said activity in the private service sector remained strong during last month, although the rate was slightly weaker than the previous month.

Its index of activity in the sector was at 58.7 last month, against 59.5 in February - above 50 indicates growth.

Ian Mitchell, senior economist at the Centre for Economics and Business Research, said: "On balance, we judge that a May increase, when the bank's committee has a fresh inflation report, is more likely than an April increase."

Vince Cable, Liberal Democrat Treasury spokesman, said: "With manufacturing back in recession, people are justifiably anxious about their jobs. The figures show that the economy continues to be fundamentally imbalanced.

"Faltering manufacturing and a house-price boom leave the bank caught between curbing the consumer boom or preventing an industry bust."