Britain's fragile manufacturing sector is still some way from recovery and thousands more jobs are set to be lost as firms battle against the tough conditions.

A report, by the Engineering Employers' Federation (EEF), said engineering firms recorded falling output in the fourth quarter of 2002 and were becoming more pessimistic about the future.

The EEF said the decline reflected the depressed conditions in the UK and overseas.

Output recorded a fall of six per cent in the fourth quarter, which compared with a decline of ten per cent in the previous quarter.