MANUFACTURING industry is on the brink of recession with export orders falling and profit margins being squeezed.

And according to the quarterly survey undertaken by the Chamber of Commerce and the Royal Bank of Scotland, the service sector is being badly hit by the impact of foot and mouth.

Mike Damms, chief executive of the East Lancashire Chamber of Commerce, said he was becoming increasingly alarmed at the threats to the area's economic base.

"We are being hit by a double whammy," he said. "East Lancashire has almost double the national average of people employed in manufacturing and the incidence of foot and mouth is one of the worst in the country.

"Manufacturing is so critical to the health of the economy of East Lancashire. The Government has always under-valued the importance of manufacturing when it comes to issues like reviewing interest rates.

"The Chamber will be having a full-length debate on the plight of manufacturing so we can review the state of the industry in East Lancashire and make further representations to the Government and the Bank of England."

The quarterly survey, regarded as one of the most acurate barometers of the state of the UK economy, showed that orders were falling in both the UK and overseas markets.

In the North West, export sales were seven per cent down on the previous quarters and less than three in ten of company bosses were expecting turnover to rise in the next 12 months.

Data released from the National Office of Statistics backed up the claim that profit margins were being squeezed, with manufacturing companies struggling to pass on the increased cost of raw materials.

"The data confirms a picture of a weak manufacturing sector," said Philip Shaw, economist at Investec. "It does paint a grim picture. "

The survey also shows that the foot and mouth epidemic has had more impact on the North West than any other region. "Even before foot and mouth, the rural economy was in a poor state," said Sam Jones, chairman of the North West Chambers' economic committee.

"The damage done to the rural tourist industry has added hugely to the problem. I hope that the plight of the rural economy is understood properly at the policy-making level."