BUSINESS activity in the North East contracted for the first time in over two years during August, according to research which fuels fears of a double dip recession.

And the region’s private sector fell behind the rest of the UK, the respected Lloyds TSB North East Business Activity Index said, with the North East decline contrasting with growth nationwide.

Job creation continued last month as it has done for the past 18 months but the growth rate slowed to the slowest it has been since February.

Martyn Kendrick, area director for Lloyds TSB Commercial in the North East, said: “Business conditions in the North East private sector worsened in August as output contracted for the first time in over two years.

“The reduction in regional business activity contrasted with marginal growth across the UK as a whole. New business volumes almost stagnated in August and this in turn contributed to the weakest employment growth for six months.”

Subdued intakes of new work enabled firms to manage backlogs, as outstanding business stayed at the same level as in July. And price pressures moderated further as both input costs and output charges rose at slower rates.

New business placed with North East private-sector companies rose only fractionally during August and lower new orders at manufacturing firms offset growth at service providers.

But where the backlog of work at North East companies remained unchanged last month, the research said that nationwide there was the fifth monthly fall in a row.