Any recovery in the engineering and manufacturing sector is unlikely before the second half of the year.

The Engineering Emp-loyers' Federation (EEF) said there was cautious optimism signs of an improvement would be seen by the summer.

But it added the outlook was still bleak across all regions of the UK with output falling at its fastest rate for three years.

Engineering output fell by 3.2 per cent in 2001, led by the downturn in electronics and the EEF forecasts a further drop of two per cent this year.

Director-general Martin Temple said: "Conditions for engineering and manufacturing remain very difficult and many members are finding life as tough as in the 1990 to 1992 recession."

He called on the Bank of England to keep interest rates on hold to allow breathing space for the recovery to begin.

The Bank's Monetary Policy Committee (MPC) slashed the cost of borrowing last year from six per cent to four per cent in an effort to revive stumbling manufacturers.

It will announce its decision tomorrow.

Economists believe rates could soon rise as the MPC bids to control the consumer boom, which saw the best Christmas in the shops for five years.

Mr Temple said: "Both the Bank and the Government have a role to play in minimising costs and maximising confidence and, as such, it is far too early to be talking about rises in interest rates.

"The Bank must stand ready to cut again if necessary."

The EEF's engineering outlook survey said cuts in jobs and investment accelerated in the final quarter of last year.

There was also a substantial deterioration in new orders, which was felt across all markets and regions of the UK.

Profit margins were now at their lowest level since the last recession, the EEF said, with the difference between services and manufacturing firms at eight per cent.

The EEF said all parts of the engineering and manufacturing sector contracted by various degrees during the year.