Economic growth predicted despite cost pressures of Brexit-hit pound
Britain's manufacturing and services firms have laid the foundations for modest economic growth in 2017 despite enduring cost pressure from the Brexit-hit pound, a report said.
The amount of manufacturing firms seeing a rise in domestic sales expanded to plus 15% from plus 13% in the fourth quarter, the British Chamber of Commerce (BCC) said.
The services sector also saw a jump, rising to plus 15% from plus 9% over the period.
However, the business body's quarterly economic survey said firms were facing mounting pressure to hike prices - with both sectors experiencing higher import costs caused by sterling's slump since the Brexit vote.
The balance of manufacturing firms expecting the price of goods and services to rise over the next three months hit its highest level on record, rising from plus 31% to plus 52%.
The services sector also soared to levels not seen since the first quarter of 2011, stepping up from plus 20% to plus 30%.
Dr Adam Marshall, director general of the BCC, said inflation had emerged as a key concern for many businesses.
He added: "Both manufacturing and services firms say they are under pressure, particularly from the rising cost of inputs, which is squeezing margins and may weaken future investment.
"Overall, our findings suggest growth will continue in 2017, albeit at a more modest pace."
Sterling remains around 18% down against the US dollar and 11% lower versus the euro since the EU referendum result on June 23.
The fall has proved a double-edged sword for companies, helping demand by making their goods cheaper for foreign buyers, but ramping up the cost of imported raw materials.
The Bank has predicted inflation will jump as high as 2.7% in 2017, while influential think-tank the National Institute of Social and Economic Research has said it could hit almost 4% next year.
Experts are concerned surging prices from weak sterling will bring an end to the consumer spending spree that has helped prop-up growth since the referendum.
Suren Thiru, head of economics at the BCC, said there was still little evidence to suggest that exporting firms were benefiting from the devaluation of the pound.
"There is further evidence that rising prices will be a key challenge to the outlook for the UK economy over the next year, with the significant rise in the cost of raw materials increasing the pressure on firms to raise prices in the coming months.
"While growth is likely to have remained on trend in the quarter, the UK's growth prospects in the near-term are expected to be more subdued, weighed down by rising inflation and the uncertainty surrounding Brexit."
The BCC report - based on responses from 7,250 businesses - said the balance of firms reporting improved export sales remained steady, edging down to plus 16% in the fourth quarter from plus 17% in the third quarter.
The number of manufacturers facing trouble recruiting surged from 64% to 76% over the period.
It added that the number of manufacturers and services sector companies expecting their turnover to increase rose from plus 36% to plus 43% and from plus 28% to plus 35% respectively.
The UK economy was revised up last month, with gross domestic product (GDP) expanding 0.6% in the third quarter, up from a previous estimate of 0.5%, according to the Office for National Statistics.
Labour's shadow treasury minister Jonathan Reynolds said: "Today's findings are welcome, however they include worrying warnings about the impact of rising inflation.
"We already know that higher inflation is a threat to working people's living standards, and today's findings highlight the risk to businesses as well.
"British businesses need certainty and a plan from Government so they can invest in their future, protecting jobs, prosperity and competitiveness."