Manufacturers were not as badly hit by the disruption caused by the Queen's Diamond Jubilee celebrations as previously feared, figures revealed today.
The Office for National Statistics (ONS) reported a 2.9% decline compared to the previous month, after production was impacted by an extra bank holiday in June, but this was not as bad as the 4.5% expected in the City.
The better-than-expected figures fuelled hopes that the UK's double-dip recession may not be quite as deep as previously thought, after the ONS's preliminary estimate for second quarter GDP showed a shock 0.7% decline.
But economists warned the manufacturing sector still appears to be contracting and will struggle to lead the economy back to growth in the second-half of the year.
Samuel Tombs, UK economist at Capital Economics, said: "June's industrial figures suggest that the drop in GDP in the second quarter is likely to be revised to a slightly smaller fall.
"But the figures did not change the overall picture of a sector struggling to grow in response to rapidly weakening overseas demand."
He added that the decline in overall industrial production, which also includes the energy and mining sectors, left output at its lowest level for 20 years.
Industrial production was down 2.5% compared with the previous month, although this too was smaller than the fall predicted by the ONS in its preliminary estimate of GDP.
The decline in manufacturing is more bad news for the Government, which had hoped the sector would lead the UK's recovery from the financial crisis by exporting more British goods across the world.
But with the eurozone the UK's biggest trading partner, the debt crisis has hit the sector hard.
Economists warned that the manufacturing sector is unlikely to return to growth until there is an improvement in the eurozone crisis or the UK successfully reaches out to other markets further afield.
David Kern, chief economist at the British Chambers of Commerce, called on the Government to focus on "aggressive deregulation" and infrastructure spending to encourage UK exports.
He said: "As the Government continues with steps to reduce the deficit, and problems in the eurozone continue, more action is needed to help the economy return to growth."
While there are hopes that GDP for the second quarter of 2012 could be revised slightly higher, the Olympics is expected to boost the economy in the current quarter.
The Bank of England suggested it could add 0.2 percentage points to GDP but recently there have been reports that central London has been empty and Prime Minister David Cameron appealed to shoppers to return to the capital.
And recent surveys have shown continued falls in manufacturing and the weakest growth in the powerhouse services sector for 19 months in July, fuelling fears the recession - already the longest double-dip for more than 50 years - will continue.