THE North-South divide will widen further and bring more unemployment to the region, according to a gloomy economic forecast.

A report compiled by economic analysts Business Strategies also forecasts that the North-East will have the country's slowest growing regional economy this year.

Growth of 1.4 per cent is predicted in the North as a whole this year, while the South is set to grow by 2.1 per cent - widening the already considerable gap.

The report warns of a weakening economic base for our region.

"Over the next decade, the North is forecast to account for a smaller share of output and employment," it states.

"The South retains important advantages, not only in its industrial structure, but also in terms of demographics and skills."

Growth in the North-East is forecast to be just 0.6 per cent, dragged down by a sharp decline in the already ailing manufacturing industry.

Neil Blake, research director for Business Strategies, said: "Manufacturing has a direct impact, because it is buying less from service industries and is employing less people, which means there's less money to spend."

On a more positive note, the report suggests employment will improve in 2003.

Growth in the region over the next four years will be led by Teesside, because there are few jobs left to shed in its traditional industries and new businesses are coming through.

The forecast suggests North Yorkshire is set for recovery in 2003 because a downturn in agriculture and tourism is coming to an end, although unemployment may continue to rise for four years

Despite the depressing forecast, business leaders remain optimistic about the prospects of the divide narrowing.

Steve Rankin, regional director of the Confederation of British Industry, said the North-East, along with the North-West, were expressing confidence about export orders picking up.

But, he said, work needed to be done on improving transport infrastructure, the region's image and poor standards of adult literacy to help narrow the divide.

Mike Collier, chief executive of One NorthEast, said the region was "getting its act together".

"We are collectively pursuing a consistent strategy which is based upon new wealth creation, promotion of entrepreneurship, high skill levels, better education and a better infrastructure," he said.

Susan Williams, from the North East Chamber of Commerce, said she was not surprised that the region's economy was predicted to be one of the most sluggish next year.

That was why the chamber was campaigning for better transport links with the South and within the region, a fairer distribution of Government investment and less red tape from Whitehall and Brussels.

Brian Hall, co-ordinator of the Campaign for a North-East Assembly, said devolved Government could help the situation.

"Unless we rectify the system and allow businesses to focus on centres of power away from London, we'll never really tackle the North-South divide," he said.

The report has been released at the same time as a call for the region to receive an extra £1bn a year in Government funding to tackle the widening economic gap.

The North-East Assembly and Association of North-East Councils have taken their case for a fair deal directly to Westminster, calling for the extra targeted grant funding by 2006.