MANUFACTURING output continued to fall in January despite signs of an upturn in the global economy, official figures have revealed.

The Office for National Statistics blamed sharp falls in the electrical and telecom equipment sectors for a 0.4 per cent drop in production two months ago. It compares with a revised 0.2 per cent fall in December and pushes manufacturing output to its lowest level since July 1994.

City analysts had expected little change on December given anecdotal evidence of an improvement in the health of the global economy.

On Monday, figures showed Britain's trade gap narrowed to £1.6bn in January on higher exports to North America, fuelling hopes of better times ahead for hard-pressed manufacturing firms.

The ONS said that if the telecoms and electrical equipment sectors were stripped out, manufacturing output would have risen by 0.6 per cent in January. But the figures mean manufacturing production last quarter was 6.1 per cent lower than 12 months before, the biggest fall for more than a decade.

The wider measure of industrial production showed a month-on- month fall of 0.5 per cent in January, down from 0.3 per cent in December.

Lower levels of gas production contributed to the drop.

Philip Shaw, chief economist at City stockbroker Investec, said the figures were disappointing.

"There had been hopes that manufacturing had turned the corner. This signals the process is going to take longer than predicted," he said.

Britain's economy failed to grow for the first time in nearly ten years in the final quarter of last year.

Mr Shaw said the figures meant it was likely he would "scale back" his GDP forecast for the first quarter of this year from 0.5 per cent.

He said: "The numbers indicate the weakness is concentrated in the IT, computing and technology areas so there is still tentative evidence the majority of manufacturing is emerging from a recession."

John Butler, economist at HSBC, said the decline would dampen fears of an imminent rise in interest rates.