A SURPRISE pick-up in demand from overseas failed to take the heat off manufacturers last night after it emerged order books continued to suffer.

The CBI's Industrial Trends Survey found manufacturers reported a fall in new orders for the third successive quarter, although the decline was less severe than previous quarters after a pick-up in export orders.

Domestic demand remained weak while the industry lobby group said business sentiment fell for the fourth consecutive quarterly survey.

The study comes days after the sector was confirmed to be in a recession, following two consecutive quarters without growth.

But North-East manufacturers have denied they are suffering a recession - saying the bleakest figures relate to industry in the Midlands.

The CBI said its findings reinforced the case for the Bank of England to cut interest rates on August 4 - a move most analysts view as a certainty.

The breakdown of yesterday's study shows 31 per cent of firms saw volumes of total new orders decrease over the past three months, while 24 per cent saw an increase. The balance of minus seven per cent is better than the minus 18 per cent seen in the previous quarter, but still disappointing given expectations for a slight increase.

Firms continue to be pessimistic about prospects with expectations for order books in the next three months now at their lowest since July 2003.

The CBI said investment intentions were weak with spending on machinery expected to decline.

However, 29 per cent of firms saw an increase in export orders with 20 per cent reporting a fall over the quarter.