The worst of the economic downturn for manufacturing is over, but signs for a strong rebound from recession next year remain "elusive", according to a new report today.

The Engineering Employers Federation (EEF) said confidence among firms was still "fragile", with exchange rate volatility and potential supply chain problems identified as obstacles.

Steep cutbacks this year by manufacturers also presented a "significant threat" to industry's longer term competitiveness, it was warned.

The business group urged the Chancellor to take measures in this week's Pre-Budget Report to help firms move out of recession.

EEF chief economist Lee Hopley said: "Whilst conditions are continuing to improve on the back of recovering world markets and a weaker currency, there is little to suggest that we are in for anything other than a long, slow haul out of recovery.

"Manufacturers have been grappling with extremely difficult trading conditions for more than a year now, but we're not out of the woods yet and a great deal of economic uncertainty remains.

"Cutbacks in investment remain of particular concern. Whilst the need to address the public finances in the long term is urgent, this must be balanced with the need to continue with supportive measures underpinning a productive sector of the economy."

Tom Lawton, of BDO, which helped with the report, added: "Whilst it is pleasing to see that conditions in the sector have stabilised, with declines in orders easing, and somewhat brighter prospects on the export front, manufacturers still face a challenging year ahead."

Research showed cuts in employment and investment continued in recent months, while growth next year was forecast to be "anaemic".