THE recovery among manufacturers made slow progress last quarter, with exporters continuing to be hit by the strong pound and tough competition according to the British Chamber of Commerce (BCC).

The quarterly economic survey from the BCC showed manufacturing sales and orders continued to edge forward in UK markets.

Manufacturing sales over the past quarter edged up on the BCC's indicator from plus 12 per cent to plus 15 per cent, while orders improved from plus 11 per cent to plus 12 per cent.

However, manufacturing export sales remained virtually flat at plus six per cent, and orders slumped seven points to register zero growth.

The percentage balances are calculated by subtracting the number of companies reporting a decrease from those reporting an increase.

Larger firms performed significantly better in export markets than smaller firms, the BCC added.

Ian Fletcher, chief economist at the BCC, said: ''There are signs that UK manufacturing is climbing out of the doldrums, but smaller firms in particular are continuing to struggle in export markets.

''The recent fall in the trade-weighted value of sterling should offer some relief to hard-pressed manufacturers but intense competition will make it difficult for them to restore margins.

''Manufacturing is particularly at risk from a slowdown in US growth and pre-emptive action is needed from the Bank (of England) to help bolster confidence and investment in the sector.''

Mr Fletcher added: ''We believe the Monetary Policy Committee should cut interest rates by a quarter-point to cement confidence and kick-start investment in the sector, and to ensure manufacturers are best placed to take advantage of improvements in the export market as the pound moves over the next few months.

''We believe there is scope for such action before the Budget.''

Mr Fletcher said if the MPC decided against a cut in interest rates, the Chancellor would probably have £2.5bn at his disposal to use for tax cuts in the general election run-up.

An interest rate cut, either next month or in March, would probably see no such give away.

Mr Fletcher said the BCC believed an interest rate cut would be more benficial to the business community as a whole rather than a loosening in corporation tax.

A cut of more than a quarter-point would, however, be counter-productive. ''There's a balance to be struck,'' he said. ''There is no real reason to panic, we just need a short sharp shot in the arm.

''The UK economy's fundamentals are right, and I'm confident the slowdown in the US will be a slowdown and not a recession. A drop of half a point would do more damage.'