FACTORY output grew by only 0.1 per cent between August and September, raising fresh fears about the state of the manufacturing sector.

The rate was lower than the 0.4 per cent expected by analysts, who said it made pretty grim reading for the industrial sector.

The figures reflect recent events in the North-East, where Presswork Metals, in Newton Aycliffe, County Durham, and Lionweld Kennedy, in Middlesbrough, have gone into administrative receivership because of rising raw materials costs.

Figures from the Office for National Statistics (ONS) also showed that industrial production, which includes gas and oil, fell by 1.4 per cent in the past quarter.

Economist Philip Shaw, at Investec Securities, warned this could lead to a downward revision of gross domestic product (GDP) figures.

He said: "Although the manufacturing sector appears to have expanded a little bit, it is another disappointing out-turn. The manufacturing figures continue to perform on the disappointing side of expectations."

The 0.1 per cent rise represented relief from a 0.7 per cent fall last month, which was the third decline in as many months. However, a survey by the Chartered Institute of Purchasing and Supply said earlier this week that the rate of growth had increased for the first time since July.

Mr Shaw said: "There is a clear disconnection between the ONS and the survey data, but even so it makes some pretty grim reading."

A major driver behind this month's increase was the electrical and optical equipment industries, where production rose by 1.5 per cent.

On a quarterly basis, manufacturing output decreased by one per cent after significant falls in the publishing industry, as well as food, drink, tobacco, chemicals and man-made fibres.

Recent figures showed GDP grew by 0.4 per cent in the third quarter, down from 0.9 per cent in the second quarter and below City expectations.

HSBC economist John Butler said the figures would probably be seen as another justification for the Bank of England to keep interest rates on hold for the moment. Rates were kept at 4.75 per cent for the third month in a row yesterday amid signs the economy is slowing down.