Cash cow may be running dry.

TEES Valley businesses which have been sustained by maintained spending in the public sector during the recession were given their clearest indication yet that the Government's cash cow was running dry.

In a keynote speech to business leaders yesterday, Chancellor Alistair Darling said the Government "would not flinch" from taking hard decisions as it reined in the UK's massive deficit, largely inflated by huge amounts of public money being pumped into the economy.

Among those to have benefited from accelerated, public projects have been Balfour Beatty and Amec, both of which employ significant numbers locally.

The Chancellor's comments, in a speech to an audience of business leaders in Cardiff, were seen as paving the way for public sector spending cuts expected to be outlined in the Pre-Budget Report this autumn. Mr Darling stopped short of announcing what services are likely to be cut, but made clear that not even the NHS would escape.

Nearly one in four people is employed in the public sector in the North-east - the highest in England.

Amanda White, North-east operations manager for employment services firm Manpower, which yesterday reported strengthening demand for support staff in the public sector, said: "It is impossible to say whether the demand we are seeing within the public sector is a short or a longer term recruitment need.

"What we do know, though, is that the North-east is the most positive UK region for the October to December 2009 period.

"The Manpower survey results demonstrate that, nationally, employers in the public sector continue to report positive hiring prospects - suggesting that sector spending cuts are not yet impacting on the ground in terms of future employer hiring confidence."

Today, the Recruitment and Employment Confederation confirmed the first improvement in the UK jobs market for 17 months as the fall in vacancies and pay eased.