The robust performance of South West small and medium sized businesses in the third quarter of 2006 was surpassed in the final quarter of the year with a broad based rise in SME activity.

That’s the view according to PKF’s SME Index, a quarterly survey of 800 SMEs in the construction, manufacturing and service sectors.

Business activity across the region was the strongest in the country at 59.3, while in Q3 it was 54.8 (where marks above 50 indicate expansion and marks below 50 indicate contraction).

The increase of activity in Q4 was fuelled by the sharpest rate of new order growth, the figure was 58.4 which has not been seen since Q2 2004.

In the construction sector, many respondents cited the award of planning permission as an important reason for growth, while both manufacturing and the service sectors put it down to a seasonal increase in the run up to Christmas.

Input price inflation remained high in Q4 at 61.3, but the increase was not quite so marked compared to Q3 when it stood at 65.1. Again, the manufacturing sector blamed higher prices for raw materials, particularly steel, as well as the increase in the minimum wage. The higher wage bill also affected the service sectors.

Levels of employment in the South West recovered in comparison to Q3 from 52.8 to 54.9 in Q4.

Neil Dimes, partner at PKF said: “In a quarter where the Bank of England raised interest rates for a second time and where our survey respondents nearly all commented on the continued increase in the price of raw materials, it is impressive to see that SMEs continue to perform strongly across the region.

“The service sector stood out in particular and, while a lot of this was down to the usual additional Christmas business, successful marketing campaigns and new sales procedures were also a factor.

“With interest rates expected to rise again however, it will be interesting to see what happens in Q1 2007.”

Copies of the PKF SME Index, a quarterly performance survey of small and medium sized enterprises are available for download from www.pkf.co.uk