THE UK's engineering sector will outpace the rest of manufacturing and the UK economy as a whole this year, according to the latest survey by the Engineering Employers' Federation (EEF).

But the stronger growth masks significant regional and sector variations, said the EEF.

The Federation's Engineering Outlook survey found engineering output and order balances had risen for the second consecutive quarter.

Exports were continuing to grow on the back of increasing world trade, with a seven per cent growth forecast for this year.

But there was a more complex picture behind the growth statistics.

Only firms with more than 200 staff had been able to increase exports, and smaller firms had suffered, said the EEF.

Margins and corporate profitability were at their lowest levels since the last recession and investment intentions continued to be cut back.

Employment also continued to fall among engineering firms.

Regionally, Scotland and the South of England were the strongest growing regions, it added.

But the balance of orders among firms specialising in the motor sector became significantly worse in the past three months, with the West Midlands worst affected.

The electronics sector saw the best growth, followed by electrical equipment and aerospace.

Overall, the engineering sector was set to grow by 3.5 per cent this year, said the federation.

But the biggest risk to sustained growth remained the possibility of a hard landing by the US economy and any slowdown in Europe, it added.

EEF chief economist Stephen Radley said: "Whilst the short-term outlook for engineering is increasing, on the back of productivity gains, a stronger euro and the growth in world trade, the upturn can only sustained if levels of investment increase."

The report comes ahead of Thursday's interest rate decision by the Bank of England.