Producers reap rewards of recovery

But manufacturing leaders have warned that the UK government must continue to stimulate bank lending if firms are to grow and create more jobs.

A survey from the Engineering Employers Federation (EEF) showed that the recovery from recession had gathered pace in the past three months.

The study also suggested that the manufacturing upturn was set to continue over the summer, and the EEF said a package of tax reforms in the Budget later this month could alleviate the concerns of industry.

EEF chief economist Lee Hopley said: "The steadily improving trends in manufacturing look set to continue in the coming months and the upswing is being felt right across industry.

"Manufacturers are pulling in more export orders on the back of a recovering world economy and a better outlook for the domestic market is giving companies some confidence to recruit again."

The report showed that, over the past three months, both output and new order balances were at record levels, while more firms had recruited staff.

However, investment intentions remained "flat", held back by uncertainty over domestic demand and future tax changes as well as lack of finance.

The EEF forecast a 3.5 per cent growth in manufacturing this year and next as output recovers from the recession.

Yet Hopley warned: "Manufacturers are very aware that economic headwinds could still pick up again as there are still risks to a sustained recovery. Great importance is now being placed on the need to rebalance the UK economy.

"In the short term, this requires a Budget that delivers tax reform and deficit reduction in a way which provides some stability and gives manufacturers the confidence to invest."

His comments echo those of Steve Graham, director of the Scottish Manufacturing Advisory Service, who called on the UK government to continue to stimulate bank lending.

Graham told Scotland on Sunday: "It's even more critical now that, no matter what government is in power, they need to continue to ensure that there's enough liquidity out there."

The EEF figures follow data published last week by trade body Scottish Engineering.

Some 43 per cent of firms said their order intake had increased in the three months to the start of June, with only 22 per cent reporting a fall. The resulting balance of +21 is the first positive reading since June 2008.