The sector contracted in May but at its slowest rate since April 1998, the Chartered Institute of Purchasing and Supply said. It last showed any growth in March 1998.
The index rose to 49.4 from 48.1 in April on a scale where any number below 50 means recession. It is the seventh consecutive improvement.
But the continuing imbalance between the industrial and consumer economies was highlighted by a survey showing the highest rise in house prices for six years.
The CIPS survey said orders - both at home and for export - were growing for the first time since March 1998. Output growth accelerated last month and is growing at its fastest rate for almost two years.
Peter Thomson, CIPS director general, said an improvement in the global economy had led to an increase in export orders despite a further appreciation of sterling.
But the survey showed that manufacturers were axing jobs in order to save costs. The employment index fell for the 16th consecutive month and at a faster rate. Mr Thomson said: "The only reason we're still below the 50 mark is because there is such a grim prospect for people in employment."
Economist Jonathan Loynes of HSBC said: "The case for lower interest rates to support growth is clearly diminishing."
Meanwhile the UK's biggest mortgage lender raised its forecast for house price inflation this year by 50 per cent after recording the largest monthly rise for six years.
Halifax said it believed the cost of a home would rise 6 per cent in 1999, up from 5.4 per cent last year. It said the revision from 4 per cent followed its May house-price index, published yesterday, which recorded a 2.1 per cent monthly rise. The increase, which takes the cost of the average home to pounds 75,576, is the largest monthly rise since April 1993.
Annual inflation is running at 5.7 per cent, compared with 3.7 per cent in April and the fastest growth rate since October last year. Halifax housing economist Martin Ellis said May's figure represented a catch-up following a weak winter. "We think it is steady-as-she-goes now but with possible fluctuations."