ROBUST expansion of small and medium-sized enterprises in Yorkshire during the last three months has made it the best performing UK region.

According to the latest index on the sector from accountants and business advisers PKF, businesses in the region, which take in the construction, manufacturing and service sectors, have signalled the greatest expansion of activity since the fourth quarter of 1999.

Companies operating in Yorkshire together with London and the South East recorded the sharpest increases in staffing levels.

Increased customer demand propelled the manufacturing sector into its fifth consecutive quarter of business expansion and a second quarter of rising employment levels.

Mark Lister, partner in charge of the Yorkshire office of PKF, said: "It is very heartening to see that, in spite of the summer quarter traditionally being slow for manufacturers, all small and medium enterprise sectors in our survey are both busy and confident about market conditions.

"Although input costs were high for the quarter as a whole, the sharp fall in the price of oil during September has already had an impact on factory gate prices and both manufacturers and their customers have been benefiting from more competitive pricing over the last few weeks."

He added: "The problem with apparent sustained growth in activity, however, is that the Bank of England becomes nervous about inflation so the next obstacle to overcome may be a rise in interest rates at a time when business activity is ticking over well for SMEs."

Output in the region in the third quarter was 58.2 compared with 51.5 in the comparable period a year ago.

In London and the South East output in quarter three was 57.0, in the East of England 55.7, for the Midlands the figure was 56.0, with Scotland 55.4 and Wales and the South West 55.0.