Employment prospects in the manufacturing sector have declined to their lowest level for more than two years, according to an industry study.

EEF, the manufacturing body that conducted the research, downgraded its annual growth forecasts for the sector but denied it was in recession.

Although conditions remained difficult and margins were tight, the survey showed signs of a modest rise in output and an improvement in the outlook for exports.

Rising energy and materials costs have hindered businesses. All sectors except transport have cut jobs, with electrical equipment companies and the car industry recording the biggest losses.

EEF chief economist Steve Radley said: “Conditions remain tough for manufacturing

but the picture is considerably better than official data suggests.

“Companies are continuing to show resilience despite the effects of massive costs pressures and the current soft patch in the economy.”