Car production picked up in July

Office for National Statistics figures showed output rose 0.1% in July, lifting the annual growth rate to 0.2%.

In the three months to the end of July, manufacturing output grew by 0.3%.

The figures come ahead of the Bank of England's latest interest rate meeting this week, when rates are expected to be kept on hold at 4.5%.

Overall industrial production, which includes figures from the oil, gas and mining industries, fell 0.3% in July.

This was largely due to routine maintenance at gas and oil facilities, which disrupted production.

Stabilising

The fourth successive monthly rise in manufacturing output represents the longest stretch of unbroken growth in five years.

The manufacturing sector might be bottoming out Peter Dixon, Commerzbank economist

July's growth was driven by increased output in the transport equipment sector, encompassing car, aircraft and train production.

The sector has begun to recover following the collapse of MG Rover in April, which affected overall output.

Strong growth was also seen in manufacturing of cigarettes, alcoholic drinks and confectionary.

Economists said the figures reinforced the widespread assumption that interest rates will remain on hold this month.

"The manufacturing sector might be bottoming out," said Peter Dixon, economist at Commerzbank.

'Mediocre'

Simon Rubinsohn, chief global economist at stockbrokers Gerrard, said the figures suggested that the manufacturing sector was "stabilising" after seeing a sharp contraction in growth earlier this year.

However, the British Chambers of Commerce said the figures were "mediocre" and pointed out that growth over the past three months was 0.6% lower than the same period last year.

"The sector continues to face huge pressures," said David Kern, the organisation's economic advisor.

Mr Kern said there was a danger of manufacturing slipping back into recession.

"In spite of the minimal increase in output seen in July, the sector is persistently failing to establish a sustainable recovery."