Business confidence survives rate rise

Last month's interest rate rise has not hurt business confidence and optimism, according to two new surveys published today. One report shows the service sector at its most optimistic for 18 months while a second says business output is continuing to grow.

The latest quarterly results from a joint CBI/Grant Thornton survey shows confidence among consumer service firms like hotels and restaurants increasing for the first time since May 2002. Confidence levels also improved among business and professional service firms, such as employment agencies and computer consultants.

The rapid rises in optimism have not yet fed through to sales, with consumer services firms seeing business volumes fall over the past three months, although the decline was at a slower rate than during the previous quarter. They expect an increase in the coming three months.

The numbers employed in consumer services rose last quarter at the fastest rate for a year and profitability also increased, again the first time for a year. Trading volumes rose among business and professional firms, but by less than anticipated. The numbers employed by these firms were flat, and the survey showed that the next quarter should also result in no new jobs.

A separate report by accountants BDO Stoy Hayward suggests that the pace of economic growth will quicken next year. Its Business Trends "poll of polls" suggests that inflationary pressures have eased after a steep rise last month. It also reveals that business order books are continuing to swell as world economic recovery gathers pace.

The manufacturing sector made a strong contribution to growth in business output, with the index up 0.8 at 101.7, despite the stronger pound hindering exports. The service sector, on the other hand, saw a drop of 0.1 to 99.2.

The overall output index climbed 0.2 to 100.00, its highest level since the start of 2001. That index, says BDO, implies the UK will reach its trend growth rate of 2.5% within the first quarter of next year. The accountants predict that the Bank of England will not raise rates again until next year.