Published by Scottish Engineering, the support group for the industry, the trends survey also shows a further drop in order intake which went in to negative mode in the previous quarter. These readings are reflected in the fact that optimism has hit a seven-year low.

Order intake for both UK (23%up,36%same,41%down) and export markets (24%up,41%same,35%down) are negative for the last three months and this situation is maintained in forecasts for the next quarter as UK (13%up,41%same,46%down) and export orders (19%up,44%same,37%down) continue downwards.

Dr Peter Hughes, Chief Executive of Scottish Engineering said: "Companies have had a severe jolt to their confidence and our SMEs in particular are finding that their bankers are proving to be far from helpful."

He added that there was growing anger from these companies who were being hit by ever increasing bank charges, despite the fact that most banks had received financial aid from the government to facilitate an economic revival.

Prices are holding up well in UK markets (20%up,72%same,8%down) but export prices (10%up,79%same,11%down) are slightly down. Margins, however, remain negative in both UK (6%up,65%same,29%down) and export markets (7%up,65%same,28%down).

Staffing levels in general (21%up,57%same,22%down) are negative which is reflected in small companies (14%up,66%same,20%down) but not large companies (43%up,57%same,0%down).

The credit crunch is also being felt in investment levels with training investment falling into a negative situation following 18 consecutive positive quarters.

Dr Hughes commented: "It is disappointing to note the drop in training and capital investment plans bearing in mind the potential knock-on effects of such reductions."