Rates fears shake confidence

MOUNTING worries about rising inflation and interest rates have knocked British firms' confidence. The claim, made in the latest poll by the British Chambers of Commerce, will raise concerns that the economy is coming off the boil.

The survey shows manufacturers and services firms put in their strongest performance since late 1997 in the second quarter. But ebbing confidence was seen in both sectors.

Manufacturers are more pessimistic about turnover and profit than at any time in the past year, and their domestic orders and export sales are already falling.

Service-sector confidence is the lowest since the third quarter of last year.

BCC director-general David Frost said: 'Rising concerns about interest rates and inflation in both sectors indicate that the climate for business, while remaining positive, is becoming more difficult as the recovery matures. Higher interest rates, higher taxes and excessive regulations remain potential serious threats.'

The BCC said it was concerned that the Bank of England's focus on the soaring housing market may result in damaging interest rate overkill. The Bank's monetary policy committee has raised interest rates four times, to 4.5%, since last November and a further rise is expected in August.

Alan Castle, UK economist at Lehman Brothers, said: 'I don't think these data will change the MPC's view going into the August meeting. But if we get further signs over the summer that the economy has peaked, it will be more wary of raising rates again in the second half of the year.'

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