The Chartered Institute of Purchasing and Supply found that while total manufacturing activity in the UK fell dramatically, the fall in export orders was tailing off.

Exporters have been hard hit by the strength of the pound

The CIPS export orders index improved from 38.9 points in November to 42.2 last month.

Overall manufacturing activity was 42.8 points, compared with 41.7 points the previous month.

The fall in new orders is also beginning to ease, the survey found.

While the figures marked an improvement in manufacturing, they were only at very low levels.

Any index figure under 50 points marks a contraction in output.

Monthly output was still declining at the third fastest rate since the survey began seven years ago.

Heading for 'moderate recession'

Analysts said the figures suggested that the economy was heading for a moderate recession this year rather than a savage slump.

Andrew Milligan, economist at CGU Asset Management, predicted that the Bank of England would hold interest rates at 6.25% when it meets this week.

"This is relatively good news. With the combination of the weakening pound and sizeable interest rate cuts, the survey is suggesting manufacturing is starting to respond," said Mr Milligan.

The CIPS says the slowdown may be starting to ease

Marian Bell of the Royal Bank of Scotland said: "The UK figures are likely to increase the likelihood that the Bank of England will leave rates on hold after their meeting on Thursday."

Jeremy Hawkins of Bank America also agreed that an unexpectedly strong gain in UK consumer credit in November may be enough to keep base rates on hold.

The Bank of England reported that consumer credit rose £1.3bn ($2.2bn) in November after a rise of £1.2bn the month before.

Mr Hawkins said: "Recent anecdotal evidence of consumer spending has been mixed, but the £559m jump in borrowing on credit cards warns that the overall Christmas period may not have been as weak as suggested by some."

Sterling's strength also eased by 6% in the third quarter of last year.

The CIPS figures also showed the pace of redundancies in the manufacturing sector was slowing.

But John O'Sullivan, economist at Greenwich NatWest, remained cool about the outlook for the whole UK economy.

"If the most recent manufacturing surveys point to some light at the end of the tunnel, the current impact of the sector on overall economic growth remains decidedly negative," he said.

Key rate decision imminent

A wider view of the economy will be given by the CIPS survey of service sector companies due on Wednesday.

Will the Bank of England cut interest rates - or keep them on hold?

The Bank of England's Monetary Policy Committee meets on Wednesday and Thursday to set interest rates for January.

City analysts predict that rates will remain on hold at 6.25% for at least another month until firm indications emerge of high street spending over Christmas and the New Year.