Business output and new orders in the East Midlands picked up last month according to new figures.
However a NatWest survey of industry leaders suggested the cost of materials and services continued to rise and business confidence had dropped to a nine-month low.
The headline NatWest East Midlands Business Activity Index signalled a modest expansion in business activity across the East Midlands private sector in October.
The upturn in output was attributed to greater new order inflows and stronger demand.
However, the rate of growth was slower than the UK average despite being slightly better than previous months.
October data signalled broadly upbeat expectations regarding the outlook for output over the coming year among East Midlands private sector firms.
NatWest said that optimism was often linked to hopes of a pick-up in client demand and an end to Covid-19 uncertainty.
That said, the degree of confidence dropped to the lowest since January as firms noted concerns regarding supply chain issues and material shortages.
Bosses in the East Midlands signalled a strong expansion in workforce numbers at the start of the fourth quarter.
Where an increase in staffing numbers was recorded, firms linked this to faster new order growth and greater business requirements.
The rate of job creation was the fastest for four months but was among the slowest of the 12 monitored UK areas.
The level of outstanding business across the East Midlands private sector rose steeply in October, with the rate of expansion reaching a fresh series record.
The pace of increase was quicker than that seen across the UK as a whole. Companies stated that backlogs of work were driven up by solid sales growth and severe supply chain disruption which exacerbated pressure on capacity further.
NatWest said: “Companies in the East Midlands registered the fastest increase in cost burdens since data collection began in January 1997 at the start of the fourth quarter.
“The rise in input prices was commonly attributed to severe raw material shortages, higher transportation surcharges and increased wage bills. The rate of cost inflation was quicker than the UK average.
“In line with the trend for input costs, East Midlands private sector firms indicated the steepest rise in output charges in the series history.
“The increase in output prices was also faster than that seen across the UK as a whole. Anecdotal evidence suggested the uptick in charges was due to the pass-through of higher costs to clients.”
John Maude, from the NatWest Midlands & East Regional Board, said: “October data signalled a stronger upturn in business activity across the East Midlands private sector, as greater client demand spurred a faster rise in new orders.
“Pressure on capacity led firms to expand their workforce numbers at a sharper pace, however ongoing material shortages resulted in a continuous record rise in backlogs of work.
“Severe supplier delays and uncertainty regarding rising Covid-19 cases hampered business confidence, which dipped to the lowest since January.
"At the same time, supply chain disruptions and labour shortages pushed up cost burdens to the greatest extent in almost 25 years of data collection.
“Firms were able to partially pass-through higher costs to clients, as charges rose at the sharpest pace on record."
