THERE was a drop in business confidence among Darlington business owners last month because of a decrease in turnover levels.

Meanwhile, it became clear the manufacturing sector has escaped falling into recession with output figures for the last three months of 2004 up 0.2 per cent. But the news is offset by rapidly rising costs and a lack of orders.

Unit costs have increased for the past five years and are now rising at the fastest rate for nine years. This, coupled with the strength of sterling, creates a difficult future for exporters.

Peter Hogan, tax partner at chartered accountants and business advisors Clive Owen and Co, said: "While the turnover figure for January has fallen considerably, employee levels have increased slightly. This is in line with results from the PMI Business Survey, produced for the Royal Bank of Scotland by NTC Research.

"It states that companies in the North-East are creating jobs faster than anywhere else in the UK, with expansion tending to be highest in service industries.

"It is possible that the drop in confidence and the effects of the interest rate rises over the last 18 months can be linked to the recent announcements made by Acre Products that its factory in Darlington must close by June."

The cabinet maker, of Keighley, is moving production back to West Yorkshire from its site at Faverdale, with a loss of jobs. Last year, the company lost a major contract with Panasonic to a company in Malaysia.

As the Monetary Policy Committee (MPC) decided to freeze interest rates at 4.75 per cent for the sixth consecutive month, manufacturers in the North-East called for interest rates to be lowered to aid them in their recovery.

Mr Hogan said: "Let us hope that the MPC will look closely at such examples before changing interest rates and that the government lightens the regulatory load for small and medium sized businesses in the approaching budget."

* The business index assesses local business activity based on figures filed by a selection of companies in the Darlington area over the course of the last month.

The figures compare and assess current business performance with previous months.