That was the conclusion of the latest regional business survey for the Royal Bank of Scotland which shows that growth is slowing but the North West remains one of Britain's top performers.

Philip McKinnon, Economist at The Royal Bank of Scotland, said: "Against a backdrop of tighter economic conditions for households, this is not unexpected.

"The labour market showed some resilience, with employment continuing to rise.
"Inflationary worries persisted though, with costs increasing at their fastest pace for over three years.

"Although companies passed some of this on to customers, competitive pressures placed some restriction on pricing power."
The weaker increase in activity was closely linked to slower growth of
incoming new business.

Panellists reported that market conditions were tougher given general cost pressures and the continuing credit squeeze.
This was particularly apparent in manufacturing, where new orders fell sharply.

Despite the substantial economic head-winds, the overall rise in new orders was still solid and above the UK average as companies released new products and utilised marketing tools to support demand.

There were reports of spare capacity, particularly in manufacturing, as levels of outstanding business fell across the region.
This was linked to weaker growth in new orders.

With signs of spare capacity building up and weakening new business growth, there are downside risks to employment in the months ahead.

With higher prices for energy, fuel and other oil-based products, overall cost inflation in the North West private sector accelerated to a rate that was only slightly lower than December 2004's survey high.

There were also reports that the strength of the euro against sterling had raised import costs.