The manufacturing sector faces a staffing shortage

The support group said orders and exports had both shown substantial growth over the last three months.

Its quarterly review for the period until December said companies were predicting that this trend would continue in the coming months.

However, the study said a shortage of skilled staff was proving to be a "major restraint".

Scottish Engineering said this problem had been identified across the country in a range of sectors.

I find it quite unacceptable that Scottish companies are still being compensated �3,000 less per modern apprentice than in England and Wales Dr Peter Hughes Scottish Engineering

Chief executive Dr Peter Hughes said the situation would be more serious were it not for an influx of skilled eastern European workers and a rising number of modern apprentices.

He pointed out that orders and output levels were rising, staffing levels were growing and prices were becoming more attractive.

"Our industry is feeling a higher level of optimism than for some time," he added.

"That level of optimism will continue if the Scottish Executive would consider alleviating one of our major concerns at the moment, which is the funding of modern apprenticeships.

"I find it quite unacceptable that Scottish companies are still being compensated �3,000 less per modern apprentice than in England and Wales.

"We need to have parity with the rest of the UK if we are to be able to compete really effectively."

Sales increase

The survey found that 38% of firms said their orders had grown during the quarter, 41% had remained the same and 21% were down.

The figures for exports were 28%, 53% and 19% respectively.

About a quarter of small and medium-sized companies expected their sales to increase in UK markets over the next three months, with about 60% staying the same.

Almost 30% of large firms expected a rise, with 42% holding firm and 29% predicting a fall - compared to 15% of small and medium-sized companies.

No large companies expected their export orders to increase over the same period, with 71% predicting that they would stay the same and 29% anticipating a fall.