THE Confederation of British Industry (CBI) has announced that the downturn in the manufacturing sector is over.

The employers' organisation made the declaration as it published figures showing the largest increase in orders since October 1996.

However, it warned that the improvement came from an extremely low base, following years of contraction.

Two-thirds of firms continue to work below capacity, jobs are still being lost and competition continues to put pressure on prices, it said.

The organisation's latest quarterly trends survey revealed 30 per cent of respondents experiencing a rise in orders in the past three months, with 17 per cent experiencing a fall.

The balance of plus 13 per cent is the largest increase in orders since October 1996, and marks the first increase in orders for three years. The improvement in orders comes from both domestic and foreign sources, boosted by the global recovery.

Export orders recorded a balance of plus four per cent, compared with minus 22 per cent in the previous quarter, and marks the first increase in export orders for more than seven years.

Output increased for the first time in three years and companies are more positive about production for the next three months than they have been for six years.

The survey shows the smallest fall in employment for nearly three years, although more job losses are expected in the next quarter.

Ian McCafferty, CBI chief economic advisor, said: "The manufacturing sector is at last on a path to recovery and firms clearly believe the worst is behind them."