A LEAKED document detailing the threat to manufacturing industry caused by remaining outside the euro has been labelled "hysterical" by a North-East business group.

Fresh evidence that the strength of the pound is hitting industry is set to emerge today with the Engineering Employers Federation (EEF) saying the Government's policy was now "inappropriate".

The views back the warning from a senior civil servant in the Department of Trade and Industry that manufacturing was facing a "meltdown", with a GMB union survey revealing that more than 10,000 jobs were lost in the sector in the last month.

But the memo, from Andrew Fraser, chief executive of the DTI's Invest in Britain Bureau (IBB), sparked conflicting views, with some business leaders describing it as ''hysterical'' and ''scaremongering''.

Caroline Walker, spokeswoman for Business for Sterling North-East, said: "This hysterical story has been leaked to distort the true picture on inward investment for political purposes.

"The Invest in Britain's Bureaus own figures which were published on Wednesday show a sharp rise in inward investment of some 23 per cent.

"The quickest way to lose inward investment would be to join the euro because it would lead to more regulations and the extra burden of the euro zones bankrupt pensions system."

A survey by the Chartered Institute of Purchasing and Supply (CIPS), showed that UK manufacturing had expanded at the slowest pace for a year in May.

The survey also showed the pace of growth of new orders remained subdued and overall sales continued to be hit by the strong pound.

The EEF is expected today to reveal that after three successive quarters of improvement since last year, conditions affecting engineering deteriorated significantly in the three months to June.

Job cuts have accelerated and export orders have fallen, the survey is expected to show.

But Ruth Lea, head of policy at the Institute of Directors, said figures from the IBB later this week were expected to show inward investment at record levels