British manufacturing activity contracted for the first time in almost two years in April after the collapse of car company MG Rover dealt another blow to companies already struggling to drum up new business.

The Chartered Institute of Purchasing and Supply/NTC Research said its purchasing managers' index (PMI) fell to 49.5 last month - its lowest reading since June 2003 and below expectations of 51.5 - from 51.6 in March. Any reading above 50 indicates expansion, while any below 50 means contraction.

The figures are likely to boost expectations the Bank of England will leave interest rates steady at 4.75% next week for the ninth month running and will heighten anxiety that the fragile recovery in manufacturing has run out of steam. 

The drop in activity was mainly due to a shortfall in new orders leading to a slowdown in production growth. High oil, steel and plastic prices continued to push up input costs but not at the same rate as in previous months.

The input price index fell to its lowest level since February 2004 at 62.5. But output price growth picked up, with the index rising to 51.6 from 50.9 in March.

New export orders eased for the fourth straight month at 49.2, mainly due to stronger competition from China and Japan tied with weaker demand from the euro zone.

UK manufacturing employment also declined in April at 47.3, after showing a modest increase in March at 51.6 for the first time in four months. But slower production growth and cost-cutting led to the reduction in work levels.

The output index fell to 51.3 in April from 52.7 in March, registering expansion for the 23rd consecutive month, but the growth was mainly due to already existing contracts.