Birmingham's manufacturing sector is spearheading the fightback against the effects of the global recession.

A major new survey of the state of the local economy by Birmingham Chamber of Commerce reveals that manufacturing export sales have soared in the first three months of 2011.

In the Chamber's Quarterly Economic Survey (QES), 55 per cent of exporting manufacturers said they had recorded an increase in export sales in the first quarter, and 39 per cent said UK sales had grown as well during the same period.

Leading the way are the automotive and aerospace sectors, which are among those who have taken advantage of strengthening of demand from certain European markets, notably Germany, and the depreciation of sterling. There has also been a surge in demand from emerging markets such as China and India.

Chamber president Dr Christine Braddock said: "This quarter's QES is welcome news for the manufacturing sector - especially after the less than encouraging results from last quarter. We are particularly pleased that exports have increased so significantly.  

"Birmingham businesses have identified rising short-term inflationary pressures as an issue of concern. This is particularly acute across the manufacturing sector were 45 per cent of businesses expect to increase prices, with over half attributing this to increased raw material costs. 

"This underlies the importance of the Government's recent decision to cut fuel duty - where a rise would have fed these pressures - but it will also increase pressure on the Monetary Policy Committee to increase interest rates in the coming months. 

"However, our members are clear that export growth is due to the Bank of England keeping interest rates at 0.5 per cent and we would urge them to continue to do so.

"This providing our exporters with a much needed shot in the arm that they are now able to capitalise on. 

"We are seeing high demand from emerging markets and it is vital that we allow our exporters to remain competitive in the face of global competition."

While it is good news all the way for the manufacturers, the local service sector is not faring quite so well, according to the QES.

Growth in sales for the service sector slowed in the first quarter, with half of all those surveyed saying they had seen no change in sales either at home or abroad.

Dr Braddock said: "The service sector continues to face difficulties and QES highlights these.  The decline in sales and advanced is to be expected given the high level of inflation and January's VAT increase, which have both dampened consumer demand.  

"Business confidence, while reasonably high among those in the service sector, is still some way short of the levels recorded a year ago. This reflects wider uncertainty around the impact of the Government's retrenchment programme, the economic outlook across the Eurozone and rising cost pressures. 

"Employment intentions remain fairly muted across both sectors with the majority of those surveyed anticipating no change in their headcounts over the next quarter. However, 11 per cent of manufacturers and 10 per cent of service firms still reduced their staff numbers over the last Quarter. 

"Cash flow remains an acute issue for many firms, particularly the manufacturing sector, where 22 per cent experienced a worsening outlook in Quarter 1. 

"The survey reinforces our belief that businesses in Birmingham will see growth in 2011. However, we would not wish to understate the extent of the challenges ahead. Last week's Budget has served to boost confidence further and a number of measures - not least the reduction in corporation tax - will improve conditions for growth."