Beleaguered small manufacturing firms faced further falls in orders, output and employment in the first quarter of 2003, in spite of staging a fight-back that slowed the rate of decline, research shows.

According to the Confederation of British Industry's (CBI) quarterly survey of smaller manufacturers, 40per cent of small and medium-sized firms (SMEs) said new orders were down over the past four months, while 22 per cent said they were up.

The balance of -1 per cent compared with -22 per cent in January and was slightly worse than the predicted minus 15 per cent, the CBI data showed.

The news is set to pile further pressure on the Bank of England to cut interest rates next month .

Last week the Bank's interest rate-setting Monetary Policy Committee left rates unchanged at 3.75 per cent.

The CBI and other industry groups have been lobbying the Bank in an effort to ease the burden on Britain's manufacturing sector, which is struggling amid economic slowdown.

Simon Bartley, chairman of the CBI's SME Council, said: "Smaller manufacturers are fighting immensely hard against a debilitating downturn.

"The slowing decline of demand may encourage slightly, but there will be widespread disappointment that the Bank of England left interest rates on hold last week."

In terms of output, the CBI survey showed 37 per cent of firms registered a fall over the four month period, while 23per cent said it had gone up. The balance of minus 14 per centcompared with minus 22 per cent in January and was slightly worse than the predicted figure of minus 12 per cent. Medium-sized firms were more negative about output than small firms for the first time since January 2001.

Looking ahead to the next four months, the CBI said firms expected output and orders and home and abroad to continue falling but at a slower rate.

With output falling more moderately, employment declined at a slower rate over the past four months and by less than expected. But companies expected further job cuts, with medium-sized firms anticipating significantly more job losses than small ones.