THE manufacturing sector showed tentative signs of recovery during the past three months, figures from the British Chambers of Commerce(BCC) have revealed.

But the sector remained in a fragile position because of the continued strength of sterling against the euro and the rising cost of raw materials, said the BCC's latest quarterly economic survey.

The survey of 7,903 UK firms employing 900,000 staff, showed domestic sales by manufacturers picked up slightly, from their worst position for a year in the previous quarter.

All sizes of firms and most regions reported a return to growth in export activity, with the manufacturing sector's sales indicator rising from minus two per cent to plus five per cent this quarter.

The improvement in the sector's performance looks set to continue in coming months, but manufacturers are facing the highest level of pressure on prices from raw material costs (+54 per cent) since the second quarter of 1997, said the BCC.

The survey also showed the service sector continued to experience relatively strong growth, but the pace looked set to ease slightly over the next quarter. Service sector firms' UK orders grew at their slowest pace since the second quarter of 1999.

Export activity had been broadly stable over the past quarter, but fewer firms are confident about future turnover and employment prospects than a quarter ago.

Dr Ian Peters, deputy director general of the BCC, said: "It is too early to say that UK manufacturing is firmly on the road to recovery, but there are tentative signs that the sector's position is strengthening.

"The return to growth in export activity justifies the period of interest rate stability, but sterling remains at a level against the euro that is still uncompetitive for many UK firms.

"While service sector activity has eased back, it is difficult to say on the strength of one quarter's figures that growth is slowing to a more sustainable rate.