Manufacturing workforces suffered deep cuts last month as companies failed to pass on higher raw material costs to their customers, the first major economic indicator of the new year has shown.
Employment in the sector fell for the ninth month in a row in December as firms took action to protect their profits, the Chartered Institute of Purchasing and Supply said. The organisation's latest manufacturing purchasing managers' index showed that output expanded last month, but at a slower pace than previously.
The CIPS barometer for measuring staffing levels - where anything above 50 is an improvement and anything below 50 is a decline - weakened to 46.9 last month.
High energy prices were the chief cause of woe for manufacturers who were also paying more for metals and packaging. CIPS said its index measuring the cost of raw materials stood at 61.9 last month and was rising faster than at any time since March.
While prices of finished goods also increased, the report indicated they were unable to keep pace.
Overall, the fragility of the UK manufacturing sector was underlined by the purchasing managers' index being virtually static - standing at 51.1 last month compared with 51 in November.
Production continued to rise to meet more new orders, but these were mostly placed domestically and CIPS said demand for UK goods from abroad slowed in December.
Manufacturers were having to work hard through marketing campaigns and offering promotions to win new contracts and stimulate interest from their customers, the report said.
Roy Ayliffe, director of professional practice at CIPS, said: "Purchasing managers saw 2005 close with another poor performance from the UK's manufacturing sector.
"Staffing levels continued to fall sharply as employers slimmed down their workforces to save on labour costs."
Analysts said evidence that the manufacturing sector was laying off staff could have a knock-on effect elsewhere.
ING economist James Knightley said: "This is unlikely to help consumer confidence and is a factor behind our weak GDP growth expectations for 2006."
John Butler, an economist with HSBC, said: "The key message is that the UK industrial sector continues to under-perform the global industrial recovery, perhaps because the key area of strength is in the production of capital goods, an area the UK has little exposure to."