Recovery goes on in region's private sector

Business output in Yorkshire and Humber rose for the 12th month in succession in May, the markit PMI index said.

Analysts and the region's business leaders said firms were confident about their prospects but warned of a "few turbulent years" to come, saying manufacturing had been hit by a sharp rise in costs.

It came as the new Office for Budget Responsibility reported that Government borrowing was lower than that feared in Labour's pre-election Budget, held in March, but also slashed growth forecasts.

Gains in new business in Yorkshire and Humber rose for the eleventh month in succession, and at a faster rate than in the the wider UK economy, the markit research stated. The index reached 58.7 – a reading of 50 would show no change on the previous month and anything higher an improvement – also helped by stronger consumer spending, and activity growth was only slightly lower than April's ten-year high.

Employment fell slightly in May, after a modest rise the previous month, as firms cut costs. Backlogs of work rose, however, and at the fastest rate since July 2007, as businesses assigned spare resources to handling greater inflows of new work.

Margaret Wood, regional chairman of the Institute of Directors in Yorkshire and Humber, said: "I believe that the private sector is optimistically cautious and waiting for the confidence of the new Government to filter through.

"However, business needs to survive to support the economy through the next few turbulent years and waiting to find out the Government's new policy on regulation and taxation holds the recovery from its impetus whilst the East breathes down our necks."

Patrick Bowes, chief economist at Yorkshire Forward, said: "It is especially encouraging that the strength of new order book growth across the region's manufacturing sector continued into May, following the surge in new business last month.

"The strength of customer demand is clearly having a positive impact on capacity utilisation and beginning to positively feed through into employer hiring intentions."

The research, which is seasonally adjusted, also showed that average input costs rose further in May, increasing sharply and at the most marked rate since September 2008.

Higher raw material costs, particularly in paper, steel and fuel, pushed up input price inflation, now in its eighth month. This led to businesses charging higher prices for the output for the second successive month, although the pressures of competition meant the increases were not passed on to customers in their entirety.

Yorkshire proves strong performer

Tim Moore, economist at financial services information company markit, said Yorkshire had performed better over the last two months in relative terms, compared to the nine English regions collectively, despite unsteady economic confidence.

"Manufacturing and services activity has been coming up quite strongly in the last couple of months in Yorkshire and Humber.

"Nationally, there has been a modest increase in manufacturing employment and a slight decrease in services.

"Confidence has taken a bit of a knock in recent months with concerns over Government cutbacks and spending."