Fears of more rate rises as business confidence booms

Fears of further increases in interest rates have been stoked by fresh evidence that business is enjoying its biggest boom in more than a decade.

Two reports published this morning show that UK business confidence is at its highest level since 1994, while capacity utilisation is at its highest since 1996.

Meanwhile a survey by the British Chambers of Commerce due out this week is expected to show that price expectations among both manufacturing and service companies have reached a record high.

The Bank of England highlighted the lack of spare capacity in the economy as one of the main drivers behind last week's quarter-point rise in interest rates to 5.25 per cent.

Inflation figures for December, due out tomorrow, will be keenly watched to see whether the CPI measure targeted by the Bank has breached the 3 per cent limit, requiring its Governor, Mervyn King, to write a letter of explanation to the Chancellor, Gordon Brown.

Today's Business in Britain survey, by Lloyds TSB Corporate Markets, shows that the strong rises in sales, orders and prices in the second half of last year are expected to continue this year.

The survey's confidence index - which measures expectations for orders, sales and profitability over the next six months - is running at its highest level since June 1994, while the balance of firms reporting price increases for last year was the largest since December 1995.

Separately, the Institute of Directors said that capacity utilisation was at its highest level since the winter of 1996.