Squeezed by fast-rising fuel and commodity prices and intense competition, manufacturing companies failed to share in otherwise widespread gains in profitability in the second quarter of this year.

National Statistics said yesterday the net rate of return for private non-financial companies was 14.7 per cent during April/June, up from 14.4 per cent in the first three months of the year and the highest return since NS started keeping these quarterly records in 1989.

But returns on capital achieved by manufacturing companies dwindled to 6.1 per cent in the second quarter - lower than at any time since early 1992 - and down from 6.8 per cent in the first and 9.8 per cent in the final months of last year.

Returns from oil and gas companies working on the UK continental shelf also slipped to 38.7 per cent from 39.6 per cent, but NS stressed that these are always likely to be volatile.

For service companies, profitability the hit a new peak of a return on capital of 20.1 per cent in the second quarter, up from 19.5 per cent in the first three months.

"These figures highlight how rising costs, particularly energy, are eating into manufacturers' profit margins," said Steve Radley, chief economist at the EEF.

"Currently, manufacturers are enjoying rising sales volumes, but a continuing squeeze on margins risks undermining the recovery in investment.

"The Chancellor must not add further costs to industry in his pre-Budget statement."

Howard Archer, chief UK economist at Global Insight, said companies generally had kept their costs down by limiting pay increases at a time when relatively healthy economic activity has lifted demand and boosted their pricing power.

Manufacturers, he added, must be hoping that the much improved demand now prevailing will hold up and enable them to re-build their profit margins.

"Overall the story is good," he added. "But there are still problem areas and there is a sharp contrast between the profitability of manufacturing and service industries."

Mr Radley stressed order books are still healthy and that there are signs that energy prices may start to settle down next year.

Meantime, Nationwide has detected a partial recovery in consumer confidence from a sharp fall after the Bank of England raised interest rates in August.

The building society's consumer confidence index staged its first gain in six months last month to restore six of 11 points it had lost in August - but only one of three sub-indices won back all the ground lost.

This was the "present situation index", which tracks the popular view of immediate prospects for jobs and economic performance.

The number of people saying this is a good time to make an important purchase also recovered well.

Looking ahead, though, the picture changes. The sub-index for expectations did recover from a dismal showing in August and is now back in line with its three-month average.

But 12 per cent of respondents said they expected their household income to be lower in six months' time, against a two-year average of nine per cent.

Stuart Bernau, Nation-wide's executive director, said: "Consumer confidence remains low and, despite improving, has not recovered fully since the slump reported last month.

"The economic picture continues to look unsettled.

"While petrol prices have fallen and there has been some good news from car manufacturers, utility bills are still on the rise.

"With such mixed messages in the economy and inflation still above target, the Bank of England's interest-setting committee will have to decide whether to raise rates sooner rather than later."