Scotland's manufacturing sector may be battered amid a crippling credit crunch and a devastating downturn in demand, but most of its companies are tough enough to withstand the global recession, Dr Peter Hughes, chief executive of Scottish Engineering, told The Herald yesterday.

Hughes' surprisingly upbeat remarks came as the latest data on the state of Scottish engineering depict a sector in which optimism has plummeted to a seven-year low and the grim reality of recession has come home to roost.

The output volumes of Scotland's engineering sector have also continued to spiral downward and investment levels have plunged.

These findings, published yesterday in the latest Scottish Engineering Quarterly Review, coincide with gloomy UK-wide manufacturing data, which reveal that a sharp slump in new orders has pushed the struggling sector to its lowest point in at least 16 years.

And as UK manufacturing shrank, mortgage approvals also slid back to a series low in October, showing that neither a weaker pound nor lower interest rates have stalled a slide into recession.

Sterling yesterday plummeted against the dollar on the back of the weak economic data, hitting a low of $1.4887. The data also fuelled speculation of a hefty cut in interest rates on Thursday.

The number of UK mortgages approved in October fell to 32,000 from 33,000 in September, matching August's 32,000, the lowest number since the data began in January 1999.

Nonetheless, Hughes yesterday insisted: "The sector is in as good a shape as possible to face the recession.

"Scotland's manufacturing companies - and not just the bigger ones, like Weir or Clyde Blowers, but the SMEs as well - are now leaner, meaner and more efficient than they have ever been." He added: "Even in the last year, as many things have gone bad with the world's economy, there has been growth among Scottish engineering firms.

"But what happens next is the big question. We don't know whether they will be able to sustain the demand for the goods they produce."

The crisis that began last year in the global credit markets - and initially hit the few that devised and sold complex financial instruments and those that sought to borrow with inadequate security - has now spread to every household and company in the land.

The big problem to hit Scotland's manufacturing sector appears to be drastic slippage in global demand, triggered by global recession.

At the same time yesterday. JP Morgan's Global Manufacturing PMI showed global manufacturing activity contracted for the sixth consecutive month in November, falling to a record low and revealing that the worldwide sector has plunged into a deep and broad-based recession during the second half of 2008.

The latest economic data yesterday also revealed that the US economy has slumped into a recession, while factories were slashing output in America, Europe and China last month as demand continued to plunge - all factors impacting the market for Scottish-manufactured goods.

In the latest quarterly review, which carries the title Scottish Engineering Manufacturing Feels the Crunch, Hughes wrote: "The Scottish engineering manufacturing sector has learned that it is not immune to the current global financial crisis. Our latest data reveals that the majority of manufacturing engineering employers are seeing a significant downturn in order intake and output volumes."

He added: "My latest round of district meetings has confirmed that 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.

"I detect a growing sense of anger from many of our manufacturing companies, who are being hit by increasing bank charges as a result of the global credit crunch."

Meanwhile, the UK PMI headline figure plummeted to 34.4, down from 40.7 in October, making November the third month in a row to see a decline, and marking the biggest monthly drop since records began. Any figure below 50 indicates a contraction.

In Scotland, as throughout the nation, the decline in activity was caused by a dearth of new orders, with UK-wide order books suffering the most severe contraction on record.

James Knightley, an economist at Dutch bank ING, said: "Today's data has intensified worries about the potential depth of the recession and has boosted the chances that the Bank of England will cut Bank rate by at least 100 basis points on Thursday."

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