THE recession-hit manufacturing sector has sounded a rare note of optimism after a survey showed that output volumes are expected to stabilise in the coming months.

According to the CBI's monthly industrial trends survey for February, 28 per cent of manufacturers expect output volumes to be up during the next four months.

Of those questioned, 27 per cent said output volumes would fall, but the balance of plus one per cent is the first positive balance since July last year. It also marks a significant recovery from December's three-year low of minus 28 per cent.

CBI head of economic analysis, Doug Godden, said: "In the survey we appear to be seeing the first signs that the severe squeeze on manufacturing is starting to ease."

But he warned: "It would be wrong to overstate the good news. While this is the first time since last summer that manufacturers have not been expecting a fall in output, they are not expecting an increase either.

"Order books are still well below normal and both profit margins and prices are still under severe pressure."

But the CBI's economic forecast, also published yesterday, said the prospects for the UK economy were improving.

It expected the annual growth rate to slow to 1.8 per cent this year, compared with 2.4 per cent last year, but the economy was expected to recover as the year went on.

Growth was forecast to pick up to 2.7 per cent next year.

Of the 1,078 manufacturers interviewed for the monthly trends survey, those in the aerospace sector said they still anticipated a sharp fall in output volumes over the coming months.

But those in the food, drink, tobacco and motor vehicle industries forecast a rise.

The survey also showed that total order books were "significantly below" normal, but had risen to levels last seen before September 11.

The balance was minus 29 per cent, an improvement on the minus 31 per cent seen last month and the minus 34 per cent recorded in December.