The strong pound is holding back the West Midlands' economy and stifling employment growth, according to an influential group of economists.

Capital Economics' Regional Chart Book for August suggests that, while the major indices are heading in the right direction, exchange rates are a greater concern in this region than others.

Growth in the West Midlands has been export led - the region recorded an 18 per cent rise last year, compared to two per cent nationwide - but sterling has risen 10 per cent against a host of currencies in the past year, stifling growth across sectors.

The Capital Economics report states: "The West Midlands might be starting to struggle as a result of its dependence on export-led manufacturing, which has been hit by the stronger pound.

"Its output balance was the lowest of all UK regions in July, although it was still consistent with growth in nominal GVA (gross value-added) of about five per cent per cent.

"While annual growth in employment was a healthy 1.8 per cent in the three months to June, it was still well below the national average of 2.7 per cent."

Over the past year, sterling has risen strongly against currencies in key export zones.

It gained more than 10 per cent against the euro - which accounts for half of West Midlands' exports - and 11 per cent against the dollar.

As a consequence, listed companies with divisions in Europe and the US are taking a hit when they translate their foreign earnings back into pounds.

Engineering giant Rolls-Royce, defence group BAE Systems and contract caterer Compass were among the heavyweights who lined up last week to say that adverse currency movements were wiping millions off their balance sheets.

Adverse currency movements drove more than 20 per cent of UK profit warnings in the first half of 2014, compared with just three per cent last year, according to a recent report by accountancy group EY.

The Capital Economics report says the trends "do not bode particularly well" for house prices.

"Although the Land Registry's measure of house prices bounced back in June from a drop in May, the annual rate of growth remained below the national average. Prices on two measures are still 10 per cent below the pre-recession level," it states.

The pound is strengthening on the back of rising confidence

Britain's economy is widely expected to outperform its G7 peers this year and, as a result, markets believe the UK will be the first to raise interest rates, according to experts, and this is pushing the pound higher.

Scotiabank economist Alan Clarke said: "With the eurozone at risk of slipping into recession and the prospect of the European Central Bank embarking on quantitative easing, the euro should be weakening against the pound.

"Similarly, the US Federal Reserve is still loosening policy through quantitative easing, which typically weakens a currency."