Another positive sign has come from the Confederation of British Industry which reports that, during the last quarter, manufacturing employment fell at its slowest pace for two years. According to the latest Regional Trends Survey, produced jointly by the CBI and Experian, the total volume of new orders rose for a third quarter in a row, though more slowly than during the previous six months. Output growth continued, but also at a slower pace.

The CBI survey shows that half of UK manufacturers are now working at full capacity, following the sustained period of expansion.

The ONS figures reveal that, during the second quarter of 2007, manufacturing output grew by 0.7% and was 1% higher than it had been a year before. The biggest increases were in transport equipment (2.6%) non-metallic mineral products (2.1%) and pulp, paper, printing and publishing (1.5%). Output of rubber and plastics products grew by 1.1%, electrical and optical equipment by 0.4%, and machinery and equipment by 0.1%.

According to the CBI, job losses in manufacturing during the three months to July totalled around 5,000 - substantially lower than the long-term average of 30,000 per quarter since 2003. Four of the UK’s 11 regions actually saw an increase in employment, with the East Midlands and the North West leading the way.

In the current quarter, job losses are expected to remain at around 8,000, with the South West and the West Midlands likely to bear the brunt.

Most regions have seen a healthy rise in exports over the past year, although the pace slowed over the past three months and forecasts for further growth are less strong than earlier this year.

Manufacturing costs, which had eased earlier in the year, increased over the past three months as oil prices rose towards $80 a barrel. The rise in unit costs bit into companies’ profit margins, although firms felt confident enough to push up prices to offset some of the cost increases.

In the North East, in particular, firms reported strong figures for new orders, output, employment and investment intentions, with domestic and export prices among the strongest in the UK.

The other star performer was the West Midlands, particularly its metals and engineering industries. The region has been one of the most gloomy in recent years but over the past quarter has become one of most upbeat in terms of business and export confidence, output expectations and investment intentions. Manufacturers are the most optimistic about their export order prospects since 1995.

"The latest survey provides some encouragement but also a warning that the recent manufacturing upturn might be running out of steam," comments Experian’s Peter Gutmann. "Sustained Euro-zone activity is boosting the sector and most regions have seen 15 months of output growth. But the external impetus might be diminishing as the strong pound-dollar exchange rate and the US slowdown dampen sales to the US, while import penetration continues to constrain the domestic market."

"The manufacturing sector’s revival is continuing, though the rate of growth has slowed somewhat," adds Doug Godden, the CBI’s head of economic and fiscal policy. "With more firms now working flat out than at any time since early 2006, there has been a very welcome effect on jobs.

"The improving Euro-zone economy, which is by far the largest marketplace for UK goods, is helping to underpin demand," he adds. "However, higher interest rates at home, increased oil prices, and sterling’s strength against the dollar, will pose challenges to the sector over the next six months."