SMALLER manufacturers reported more output over the last quarter but soaring costs and lack of orders continued to bite, a CBI survey showed.

The quarterly survey of small and medium-sized companies, released yesterday, shows a modest rise in factory output - the best for seven years.

And a further rise is expected over the next three months.

However, unit costs have risen continuously for the past five years and are now rising at the fastest rate for nine years, driven by raw material and fuel costs.

Total orders remained flat over the past three months. Thirty per cent of firms saw orders rise and 27 per cent saw them drop.

Companies are expecting orders to increase over the next three months - with medium-sized firms expecting the most significant growth.

Small firms reported a further fall in export orders, while medium companies said there was no change in the past quarter.

The amount of firms who said prices were restricting exports increased in the past three months, the survey showed.

Employment was static during the period, and is expected to remain so over the next three months.

Manufacturing businesses plan to reduce investment in buildings, plant and machinery, but spending on innovation and training is forecast to rise at a strong pace over the next year.

Penny Hemming, CBI regional director for Yorkshire, said: "Smaller manufacturers are facing an uphill struggle, with costs soaring at the fastest rate for nine years.

"The survey shows that some firms managed to increase their prices for the first time in nearly nine years, but they are not rising at anything like the same rate as costs and margins are continuing to fall for many.

"The manufacturing sector needs a period of long-term stability in the economy.

"Firms will be hoping that interest rates can remain on hold for the foreseeable future but they are also looking to Government to lighten the regulatory load which adds even more to costs, especially for smaller firms."