ANY last hopes for a revival in manufacturing were fading last night as figures showed a sharp downturn in the sector during the last quarter.

Employment and home and export sales in manufacturing were at their weakest since 2001, according to the quarterly economic survey by the British Chambers of Commerce (BCC).

The gap between manufacturing and services also widened, with services gaining ground and seeing a marginal recovery across the board, the BCC said.

There were hopes the sector was seeing a turnaround last month, after a number of surveys showed increases in output, orders and jobs.

But BCC director general David Frost said the weakness in manufacturing was a case for serious concern.

He said interest rates should not be raised prematurely and called on the Government not to increase taxes.

He said: "Efforts to increase the productivity and competitiveness of UK manufacturing must, therefore, be at the forefront of the national economic agenda and particularly for the Chancellor in his pre-budget report."

The survey of 7,439 firms found that home sales in manufacturing worsened in the third quarter, with net balances falling to zero for home sales - their lowest level since the end of 2001 - and home orders also falling.

Exports were also down.

However, turnover and profitability confidence in the sector were both stronger than at any time since the fourth quarter of 1999.

BCC economic advisor David Kern said: ''The manufacturing sector's overall position remains disappointingly weak and the third-quarter figures point at best to a fragile recovery later in the year and in 2004."

The survey comes after Hartlepool Fabrication, which manufactured the Angel of the North, announced this week it was going into administration with the loss of 38 jobs.

In August, the North-East and North Yorkshire suffered a triple manufacturing blow when 100 staff were laid off at circuit board maker Circatex, in South Shields, another 100 at Carpets International in Hartlepool, and 220 at chocolate firm Nestle Rowntree's factory in York.

Clothing manufacturer Sara Lee Courtaulds' factory, near Bishop Auckland, closed earlier this month with the loss of 350 jobs