BUSINESS leaders last night painted a gloomy picture for North-East manufacturing as a new survey showed growth had fallen to its lowest level for four months.

The Chartered Institute of Purchasing and Supply (CIPS) said a marked decline in demand in the consumer goods sector hampered output, while export volumes were hit by competition from the Far East. Its activity index for the sector slumped to 50.5 in June, from 52.7 in May.

On the CIPS index, a figure above 50 indicates expansion, while one below means a contraction.

The figures coincide with increasing fears over a possible rise in interest rates, although they are likely to have little impact on any decision made by the Bank of England.

Hugh Morgan-Williams, chairman of the Washington, Wearside-based Canford group, which manufactures broadcast equipment, said the survey quashed hopes of a strong recovery in the manufacturing sector.

He said: "Our sales are down seven per cent on annual turnover, although we are still profitable and maintaining employment.

"The situation remains pretty bleak for manufacturing in the region unless you are in a niche market with increasing demand.

"When the sector slows, the North-East suffers, because we are so reliant on manufacturing."

Mr Morgan-Williams said a rise in interest rates aimed at cooling the overheating housing market would hit manufacturing like a "hole in the head".

He said: "We need more time to build and more time for a global recovery to take place before a rise is even contemplated. At the moment it would send out entirely the wrong signal."

Steve Rankin, regional director of the CBI, said: "People are a lot less optimistic than they were over manufacturing.

"Whatever recovery there has been has been extremely fragile.

"We don't want to see interest rates used as a blunt instrument to address problems in one particular sector that could hit a number of others."

The fall in demand in the consumer goods sector follows the recent stimulus of the World Cup and the Golden Jubilee celebrations, said CIPS.

Roy Ayliffe, its director of professional practice, said: ''The message to the Bank of England is: don't put rates up. We need a bit longer."