Small and medium sized companies in the Midlands have the largest increase in year-on-year business orders in the UK, despite rising costs.
According to the SME Index, produced by account-ants and business advisers PKF, new business orders in the region rose from 49.8 index points to 54.9 in the second quarter of 2006.
Output among Midlands SMEs also rose sharply from 49.6 to 54.6 points, recording the second largest quarterly year-on-year increase, just behind Scotland.
The growth in new business orders reflects the national trend. Manufacturing benefited from seasonal and increased demand and the service sector started to reap the rewards of their New Year sales and marketing campaigns.
But, service companies struggling to win new business cited the World Cup as a reason for an unseasonably quiet June.
Business output in the UK rose to 55.5 from 55.3 points in the first quarter and new business orders remained buoyant at 54.8 - marks above 50 indicate expansion.
The construction sector signalled the sharpest rate of growth at 56.4 and manufacturing has now recorded four consecutive quarters of rising business activity following a shaky start to 2005. PKF said anecdotal evidence suggested this was due to factors such as increased export activity, a 'buoyant market', and the summer season.
However, the quarterly survey of 800 SMEs operating in the manufacturing, construction and service sectors, shows the Midlands is performing below the national average in business costs and employment.
Business costs rose at their fastest rate since the fourth quarter of 2004. The Midlands saw the highest increase in raw material costs rising 8.4 points to 66.5.
Manufacturing companies cited ever-rising prices for steel, copper and oil for the increase, while fuel and labour costs were the main contributors to rising service sector costs.
Toby Stephenson, PKF partner for growing business in Birmingham, said: "The hefty and ever-increasing costs of raw materials are forcing businesses to put up their prices.
"These inflationary pressures will make it even harder for Midlands industry to compete in the global market-place."
The survey suggested that SMEs are making a greater effort to pass increased costs to their customers with varying degrees of success.
Manufacturers are passing on raw material, fuel and energy surcharges while service providers are increasing their rates, charging higher summer prices, and reducing their discounting.
Employment was also another source of bad news for the region.
According to the index, the number of people in jobs in the Midlands has remained fairly static. The region produced the lowest recorded annual regional average at 48.5 points compared to 51.3 nationally.