Hopes of a recovery in the UK manufacturing sector have been hit after a new survey showed growth falling to its lowest level since February.

The latest study, from the Chartered Institute of Purchasing & Supply (CIPS), showed that overall activity in the sector barely increased in June.

Encouraging figures over the past few months had raised hopes that manufacturing was recovering from recession.

Analysts said this latest evidence made it extremely unlikely that the Bank of England would go for for an early rise in interest rates - even though new figures from the Nationwide Building Society showed house prices rising at an annual rate of 20% in June.

Consumer demand falls

CIPS said its latest activity index for the manufacturing sector fell to 50.5 in June, down from 52.7 in May.

It certainly appears that the backdrop for the overall economy remains subdued even if the housing market is going from strength to strength

Ciaran Barr Deutsche Bank

A figure above 50 indicates that the sector is expanding, while one below 50 means a contraction.

The slowdown was put down to a "marked decline" in the rate of growth of demand in the consumer goods sector.

In the previous two months companies operating in this sector had enjoyed strong growth, thanks to the Queen's Jubilee and the World Cup.

But CIPS said this stimulus had mostly come to an end last month, with growth returning to average levels.

Demand for UK exports was also hit by greater competition from the Far East.

Unpleasant surprise

The CIPS figure was worse than analysts' forecasts.

"It's very disappointing. It's taken out a very large part of the recovery story," said Ciaran Barr at Deutsche Bank.

"It certainly appears that the backdrop for the overall economy remains subdued even if the housing market is going from strength to strength."

Economists now think it will be some time before the Bank of England increases interest rates.

"It buys the Bank of England more time to wait and see on rates, especially with inflation so subdued," Mr Barr added.

And Geoffrey Dicks at RBS Financial Markets said: "These data make a rate hike in August less, rather than more, likely."