Look to the East and exports, small ventures are told

Dominic Swords, who used to work in the Bank of England's economic intelligence unit, also said Yorkshire's strength in manufacturing, as well as Leeds's high number of IT and business and professional services firms, would help small and medium-sized enterprises (SMEs) which are hit by cuts to the public sector supply chain.

Mr Swords, an adviser to KPMG who was at the accountancy firm's Leeds restructuring practice to address bankers and businesses from Yorkshire, said: "We are very much in the third phase of the cycle, which is the stabilising and growth phase. There are a number of economic indicators, such as sentiment and investment, that all point towards businesses growing."

Mr Swords, also a visiting professor at Henley Business School, said the contraction in the public sector – with details due to be announced in George Osborne's Comprehensive Spending Review on Wednesday – clearly posed a threat but there were still opportunities to grow.

The importance of SMEs should not be forgotten, because they provide 41 per cent of employment and 47 of gross domestic product in Yorkshire, he added.

"During past recoveries, they have contributed two-thirds of employment growth. They are more flexible so, in the same way they cut costs and shed staff, they are more able to seize opportunities quickly."

Businesses with a high proportion of local authority customers would be hit but those supplying the State education and healthcare sector would fare better, because of the coalition Government's pledge to protect these areas, he said.

Kenny McKay, partner in KPMG's Leeds restructuring practice, said: "SMEs are vulnerable to failing to capitalise on their potential agility to exploit the strongest opportunities such as entering or investing further in growth geographical markets like India or China or altering their product offering to exploit growth sectors such as energy.

"Equally crucially, as they generally lack the financial padding of larger firms, they are also at greater risk of running out of cash while investing in the very innovation and change required for their future prosperity."

He advised SMEs to consider five "core principles" – keeping control of the business and its financials, focusing on efficiency and innovation, be "hard-nosed" when considering investment, use advisers or non-executives to provide alternative views on big decisions and to manage a dialogue with stakeholders such as funders.