SCOTTISH manufacturers suffered a second straight quarterly slump in domestic orders in the latest three months, and fear that export business will drop at the fastest pace for four-and-a-half years, a key survey has revealed.

And Scottish manufacturers also reported the first contraction in their overall workforce since early 2010 in the latest three months.

The survey, from the Confederation of British Industry in Scotland, will fuel fears over the state of the economy north of the Border as the Conservative-Liberal Democrat Government’s swingeing cuts in public spending loom large.

CBI Scotland director Iain McMillan described the results of the latest survey as “undoubtedly disappointing”.

Asked by The Herald if the survey had raised fears in CBI Scotland of renewed manufacturing recession, assistant director David Lonsdale replied: “Hopefully it will be more of a pause before a resumption in growth.”

However, he added: “I don’t think anything can be taken for granted. Obviously, we are keeping a close eye on what is happening, particularly on the Continent, and how that is going to affect confidence and prospects for Scottish manufacturers.”

A rare bright spot in CBI Scotland’s latest industrial trends survey was that Scottish manufacturers signalled a rise in output in the latest quarter, after a fall in the preceding three months. But this rise was marginal and manufacturers are projecting a sharp slide in the coming three months.

Manufacturing exports had been proving resilient, according to past CBI Scotland surveys and Scottish Government data.

However, overseas sales now appear to be coming under real pressure. Scottish manufacturers reported only marginal growth in export orders in the last quarter, and are projecting the sharpest slide in overseas business for four-and-a-half years in the coming three months.

The CBI survey also showed Scottish manufacturers’ concerns over political and economic conditions abroad had risen, and were now at their fifth-highest quarterly level in 10 years.

Mr McMillan said: “Worries over the problems in the eurozone, the sustainability of sovereign debts more widely and the political will to deal with them have grown, making conditions for our manufacturing exporters more challenging.”

Subtracting the percentage of Scottish manufacturers reporting a rise in new domestic orders from that suffering a fall in the latest three months, a net 21% posted a drop. This was a deterioration from an already grim balance of 17% reporting falling domestic orders in the previous quarterly survey. And it was a much worse outturn than that from a UK-wide survey by the CBI, also released yesterday, which showed a net 5% of manufacturers reporting a rise in domestic orders.

A net 8% of Scottish manufacturers reported a drop in total new orders in the latest three months. The balance of Scottish manufacturers reporting a rise in export orders dropped to just 2%, from 14% in the previous quarterly survey. And a net 6% of Scottish manufacturers forecast a drop in export orders in the coming three months. Meanwhile, a net 18% of Scottish manufacturers forecast a drop in domestic orders in the coming three months.

Mr McMillan said: “While our exporters have more headwinds to battle against, we do think there are things that Government here can do to help. That is why we continue to argue that the Scottish Government’s spending plans should be improved in order to better galvanise growth. A far bolder approach to making savings is required, in order to release monies for further investment in infrastructure and support for exporters.”

Mr McMillan also declared that “the decision to block extra runway capacity at Heathrow and Gatwick has raised questions over the UK Government’s commitment and strategy for helping Scottish firms export”.