SMALL businesses in the South West are hiring more workers than anywhere else in the country.

The findings are based on a survey of 800 small and medium sized enterprises carried out by accountants PKF.

As well as recording the highest levels of employment in the UK for the fifth consecutive quarter, the region, which covers the South West and Wales, saw output levels and new orders rise.

But there is a sting in the tail, with the region's sales and new business orders still the lowest in the UK, according to the PKF Index, which surveyed companies operating in the manufacturing, construction and service sectors.

The survey overall painted a rosy picture of Britain's small and medium sized enterprises.

This is the first time since the beginning of 2001 that all six UK regions have recorded higher levels of employment than the previous quarter.

But in spite of the steady overall growth within South West SME businesses, survey respondents have their guard up against management complacency, which they regard as the greatest threat to their businesses in 2004.

Other major threats are currency fluctuations particularly the weakness of the US dollar and overseas competition in the form of cheap overseas labour.

The threat of terrorism is also regarded as a brake on businesses in the tourism and leisure sectors.

Peter Tegg, managing partner at the regional office of PKF, said: "While it is encouraging that this quarter's survey findings reveal that the region is still leading the way in job creation, its output for the last six months has started to fall behind the rest of the UK.

"Clearly, improving output needs to be the focus for our SMEs looking forward."

Mr Tegg attributed some of the South West's employment growth to businesses relocating to the South West.

"The South West is a great place to live and work, and the M4-M5 corridor provides excellent transport links to the rest of the country which makes it attractive to businesses looking to move away from London and the South East," he said.

Andy Tate