SMALLER manufacturers have reported an increase in orders for the first time in more than three years, it was announced yesterday.

Bosses organisation the Confederation of British Industry (CBI) said the total number of orders increased during the past three months, with 33 per cent of companies reporting an increase and 28 per cent reporting a fall.

At the same time, confidence among small and medium-sized companies rose at its fastest rate for two years, the CBI said.

The research found that the strength of sterling was holding back exporters, despite predictions they would see the strongest rise in orders since July 1996 during the three months.

The research found that output among small and medium-sized manufacturers increased for the first time since January 2002.

Small companies continued to cut jobs, while medium-sized companies increased staff for the first time in more than six years.

Hugh Morgan Williams, chairman of the CBI Small to Medium-sized Enterprise Council, said: "Though the increase in orders is relatively modest, it will mean an awful lot to smaller manufacturers who last saw orders rise in early 2001.

"Confidence is on the up, and while jobs are still being lost among smaller firms, it is encouraging to see medium-sized companies increasing employment for the first time in more than six years.

"Exporters will be watching the level of sterling closely and manufacturers of all sizes will be hoping oil and other commodity prices do not rise any further.''

The research found costs rose at their fastest rate since October 1995 during the quarter, keeping pressure on companies' profit margins.