West Midland manufacturers have enjoyed three months of stability but prospects for next year look more uncertain.
That was the finding of the latest quarterly business trends survey in the region by EEF, formerly the Engineering Employers' Federation.
It found that despite continued weakness in the motor industry, most companies in the region are reporting similar results to the previous three month period.
They are also continuing to see increases in domestic orders while exports also remain strong - as they have for most of the year.
The survey also shows that employment levels in manufacturing have increased for the first time in several years.
However, companies are not confident the good news is going to last, the EEF says.
Employment, output and orders forecasts for the next quarter have fallen substantially, and projections on total orders are he weakest since the beginning of the year.
In light of prospects of slower growth ahead, and a continued squeeze on margins, EEF West Midlands has repeated its plea for no further costs to be imposed on industry in this week’s pre-Budget statement.
Ian Smith Chief Executive of EEF West Midlands, said: "It is vital that the Chancellor does not increase the tax burden.
"If the recovery in investment is to be sustained he must signal his intention to improve our tax competitiveness over the rest of this Parliament
"Manufacturers have enjoyed a strong year based on significant increases in exports but companies seem more pessimistic about the next quarter.
"This could be explained by uncertainty over interest rates and the strength of the pound versus the dollar.
"If, as this survey suggests, world markets could weaken in 2007, we’d expect to see companies suffering from the exchange rate."
The EEF has also called on Chancellor Gordon Brown to act to prevent an acceleration in the nunmber of major companies buying from or re-locating to lower cost countries.
This can be achieved by reversing the deterioration in the UK's competitiveness on tax and by tackling energy costs, the organisation says.
A more strategic approach to public procurement and ensuring the level of support given to companies matches that of Britain's competitors would help.
Companies will be end up paying #11.9 billion more in tax by 2008-9 than they were in 1997, the EEF has calculated.
This at a time when other countries are reducing the tax burden on their wealth creators.
On top of rising taxes, energy costs are soaring with 77 per cent of firms reporting gas price rises of more than 30 per cent and more than 50 per cent saying saying bills have gone up by more than 50 per cent.
"There should be no further rise in the business tax burden in the pre-Budget statement and over time we would like to see the tax burden reduce," said Mr Smith.
"We further believe there should be no increase in taxes on energy such as the climate change levey or red diesel duty.
"Energy costs have remained a huge problem for companies during 2006."