Research shows region leading the way in private sector growth

The region saw a strong recovery in manufacturing and services with output and new business increasing at a faster rate, according to the PMI, published by Markit.

A number of companies took on staff as workloads increased while input cost inflation slowed to the weakest since January.

The business activity index – which measures the combined output of the region's manufacturing and service sectors – posted 57.1 in July, a marginal improvement on June's 56.6.

Patrick Bowes, chief economist at Yorkshire Forward, said: "The pace of recovery in private sector employment intentions is very welcome and is further evidence that improving capacity utilisation is having a positive impact on the jobs market."

The region has now seen 14 successive months of growth. There was also marked rise in incoming new business, which was also the strongest in the UK during July, and reports of higher investment from clients, with demand supported by increased promotional and marketing work.

Anecdotal evidence suggested that domestic customers were the primary source of new business growth.

Firms in the region increased their number of staff for the third time in the past four months and the rate of growth was solid and faster than the UK average, the PMI said.

Backlogs of work were down very slightly for the second month running.

Higher global demand for commodities pushed up raw material prices during July. Although average input costs rose markedly, the rate of inflation weakened further from May's recent peak to a six-month low.

Companies largely did not pass on their higher operating costs to clients as they were forced to battle strong competition.

Yesterday another report, from accountants Deloitte, said firms across Europe and the US are making "real progress" in rebuilding profits but warned that consumer confidence is still fragile.

VAT is set to rise to 20 per cent next January while food prices are rising sharply due to a Russian drought lifting wheat costs.

Mervyn King, Governor of the Bank of England, has already signalled his doubts over a "sustained" recovery despite the rapid 1.1 per cent advance seen by the economy between April and June.