THE latest purchasing managers' index for the south west produced for the Royal Bank of Scotland has revealed an expanding regional economy.

Output and order book growth have remained substantial, with demand matching that recorded across the UK.

Firms increased capacity and hired extra staff in November, but competitive pressures again forced south west firms to reduce average charges for their goods and services.

There was a rapid expansion in business activity and the pace of growth was only just below October's near seven-year high.

Of the firms reporting higher activity, the majority attributed the rise to the upsurge in demand.

Although regional growth was slightly outpaced by that recorded at national level in November, south west firms generally experienced a growth trend in line with, or better than, the UK as a whole since the end of 2000.

The prime driving force was the increased flow of incoming new business - the strongest since January 1997.

Growth in new business was boosted by a revival in some export markets, as well as the strength of existing domestic markets.

Companies in the region signalled a stronger pace of employment growth during November, generally on the back of the positive sales performance.

The size of the region's labour force expanded for the sixth month running.

Andrew McLaughlin, RBS deputy chief economist, said: "The south west was one of the best performing UK regions in November, with strong growth of output and order books resulting in further job creation.

"The PMI data for the region have indicated increased volumes of new business in the private sector during each of the past eight months, and the pace of expansion has generally accelerated. Employment growth has also strengthened, as firms have raised capacity levels."

Firms in the south west are among the least innovative in the country, according to a survey published by the Design Council.

The survey discovered that turnover had been at a standstill over the past year for 39 per cent and, for a further 11 per cent, business went into decline.

The research, carried out with firms of all sizes and across a range of industries, showed that only five per cent of south west companies enjoyed a rapid growth in turnover.

Harry Rich, director-business at the Design Council, said: "Nationally our research has established a clear link between business growth and design.

"The more a company exploits design, the more likely it is to grow.

"Too many companies appear to be unaware of the link between design and growth - as a result, many may not expand in the way they hope to."