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UK manufacturers remain upbeat about their future prospects, despite tougher trading conditions, a new report has said.

The Engineering Employers Federation (EEF) said its latest research indicated the global credit crunch had only had a limited impact on manufacturers to date.

Only a small percentage of companies have reported seeing a significant increase in the cost of finance as a result of the credit squeeze, the business organisation stressed.

In addition there are few signs the turmoil on the financial markets is affecting the investment plans of manufacturers, the EEF added.

The trade association's latest barometer of industry sentiment said output and order balances both remained firm in the last quarter.

Meanwhile 41 per cent of manufacturers said they expected output to increase over the first three months of 2008, compared to 22 per cent anticipating a fall.

Asked about the impact of the current turbulence in the financial markets on company finance, just 2.4 per cent of the 577 firms who responded to the question reported a significant increase in the cost of obtaining credit from banks and other financial providers. Almost 40 per cent said there had been no change.

Commenting on the findings, EEF chief economist Steve Radley said: "Despite rising oil prices, a falling dollar and a more uncertain economic outlook, manufacturers recorded another quarter of healthy growth and are looking to the future with a degree of confidence.

"Though the economic outlook remains unclear, manufacturers’ greater resilience should mean that growth continues into 2008," he added.

The EEF now expects the engineering sector to expand by 1.3 per cent in 2007 and one per cent in 2008, while forecasting 0.8 per cent growth within the manufacturing industry over this year and next.