Britain's struggling manufacturing sector saw employment fall at its sharpest rate in ten years last month.

The monthly survey, by the Chartered Institute of Purchasing and Supply (Cips), shows the manufacturing workforce contracted further in December to record a figure of 42 on its employment index, against 42.8 in November. On the Cips scale, a reading of above 50 shows growth, while below contraction.

Cips said with an increased proportion of firms reporting either recruitment freezes or forced redundancies at their units, employment fell at the sharpest rate in the survey's history.

Overall, Cips' manufacturing index, which measures new orders, prices and employment, fell to its lowest level since January 1999.

The index recorded 45.2 in December, down from 45.6 in November, and Cips said the index had now remained below the critical no-change mark of 50 since March last year.

In December, the index was depressed by falling output, orders, employment and inventories.

Order books fell for the ninth straight month, although the pace of contraction eased.

Falling sales reflected the weakness of global manufacturing demand, while subdued business confidence was reported to have led many clients to postpone placing new contracts and instead attempt to run down stocks.

John Butler, an economist at HSBC, said: "The most dramatic deterioration was in the balance on stocks and employment. The employment balance has fallen to the lowest level since the survey began in January 1992.

Destocking and redundancies are indications that manufacturers are not optimistic about the future and are still seeking ways to cut costs in an attempt to rebuild profitability."

The index was based on data compiled from replies to questionnaires sent to purchasing executives in 620 industrial companies.

TUC general secretary John Monks said the figures were bad but not unexpected.

He said: "Manufacturing has been in recession for some time and it looks like 2002 could see another 150,000 jobs lost."