THE UK manufacturing sector contracted for the second month in a row in June due to falling exports and fewer new business wins, according to a survey.

The Markit/CIPS Purchasing Managers' Index, where a reading above 50 indicates expansion, rose to 48.6 from May's three-year low of 45.9 which was slightly above expectations.

However the British Chambers of Commerce quarterly economic survey, also published today, suggests the Scottish manufacturing sector outperformed the UK in domestic orders.

The Scottish balance for domestica orders was at +27% against a UK figure of +9% with exports from Scotland also +27% compared to +31% for the UK.

The Scottish service sector continues to lag though, with domestic sales at -34% in comparison to +10 for the UK.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: "This underlines the need for a diverse economy as we move away from a reliance on the public sector in terms of securing Scottish economic growth."

The mixed economic picture has added to fears the double-dip recession will continue. In June the CIPS PMI said the level of incoming new business in manufacturing was at 47 which was the third successive month of contraction.

The weak global conditions and the reluctance of clients to spend were blamed although the rate of decline did slow from the previous month's reading of 42.

Overseas demand also contracted for the third month in a row with the eurozone crisis and slower economic growth in the US and Asia highlighted as main factors affecting exports.

Over the whole second quarter the average PMI reading was 48.2 which is the weakest since the second quarter of 2009.

Samuel Tombs from Capital Economics said: "The improvement in the CIPS report on manufacturing in June mainly reflected a bounce-back following May's unexpectedly sharp fall, rather than any fundamental improvement. The big picture is that the manufacturing sector is still in decline. It seems very likely that the manufacturing sector has remained a drag on GDP growth in the second quarter.

"Indeed, with other sectors showing few signs of growth, it seems increasingly likely that the overall economy remains in recession."

That has cemented feelings the Bank of England is likely to restart its quantitative easing programme this week and top up the £325 billion it has already ploughed into the economy.

Philip Shaw at Investec said: "It still seems that the manufacturing sector is contracting and the bounce-back in the index does not detract at all for the case for more quantitative easing on Thursday."

However, there was some good news with the output balance rising from 47.6 to 51.7 and average input prices falling in June at the fastest pace for three years.

The cost of chemicals, energy, foot products, metals, packaging, plastics and transport were reported to have dropped. Average selling prices rose as companies try to protect margins.

CIPS chief executive David Noble warned that further job losses will follow unless orders improve.

He said: "The effects of the eurozone crisis and global economic slowdown are making it a tricky time to build on exports, but there were a couple of brighter spots which helped ease the decline.

"The significant reduction of input prices was a silver lining as businesses tried to claw back some of the margins lost in previous months. Businesses have also responded to weak levels of new orders by working through backlogs of work, leading to an overall growth in output.

"The concern for the near future is the spare capacity reported by manufacturers, which could lead to job losses in the coming months unless there is a pick-up in orders."