by business editor Trevor Sturgess

After Olympic euphoria, economic reality returned to the podium as south east firms reported the steepest fall in output for more than three years.

The latest purchasing data from Lloyds TSB showed that private sector activity across the county and the rest of the region fell for the first time since November. The rate of decline was the fastest since March 2009.

The bank said that temporary factors, such as the Olympics and heavy rain in June, could be behind the fall as well as the longer-term problems of the Eurozone.

However, new business rose slightly in June and private sector employment edged up for the third month in a row, although the rate of job creation was slow and weaker in the south east than elsewhere. The cost of raw materials fell and tough competition forced prices down.

Phil Beales, Kent and East Sussex area director for Lloyds TSB Commercial, said: "Activity growth in the south east was brought to an abrupt halt in July, following on from the previous month's stagnation in new business. Moreover, the resulting contraction in output was the largest seen in over three years.

"The long period of bad weather may have been partly responsible for some of the negative trend, but the underlying picture is clearly weak."

Meanwhile, almost a third of private sector employers are holding on to more staff than they need to avoid losing skills, according to research for the Chartered Institute of Personnel and Development (CIPD).

But almost two thirds (62%) believe they will be forced to let them go without a pick-up in economic growth. Small and medium enterprises are more optimistic than larger firms about potential jobs growth.