British manufacturers suffered their worst month for nearly three years in May as costs soared and growth ground to a halt.

The Chartered Institute of Purchasing and Supply (CIPS) said output was flat last month - the first time since July 2005 the sector failed to grow. Factories hit by higher raw material costs put up prices for a record 34th month in a row.

Roy Ayliffe, director of professional practice at the CIPS, said: "Following a further decline in new work for UK manufacturing firms, May marked the end of a three-year period of sustained growth for the sector and entry into a period of stagflation - no growth and high inflation."

It highlighted the problem faced by the Bank of England's monetary policy committee ahead of this month's interest rate decision on Thursday. Economists widely expect it to leave rates on hold at 5%.

NTC economist Rob Dobson said: "The UK manufacturing sector has experienced a turbulent start to 2008.

"It is becoming increasingly likely that charge inflation will add further pressure to consumer price inflation in the coming months, making the MPC's tightrope walk between rising cost pressures and slower economic growth even more precarious."