Britain's economy retained its momentum through the final months of 2016, but inflation pressures mounted at the fastest pace since records began almost 20 years ago, a major business survey showed yesterday.
The British Chambers of Commerce (BCC) said sales and hiring improved modestly in the fourth quarter, adding to signs that Britain likely outpaced most advanced economies in 2016.
A record number of manufacturers expect to raise prices in the next three months - a direct consequence of the weak pound, which is still down almost 12pc on a trade-weighted basis since June 23.
More businesses in the services sector plan to raise prices than at any time since early 2011.
While businesses reported a marginal improvement in export sales during the fourth quarter, the BCC said that there was little evidence that sterling's weakness had prompted a boom in overseas demand. Inflation pressures were particularly acute for manufacturers, who are suffering from soaring raw material costs.
The BCC's price records extend back to the second quarter of 1997.
"Overall, our findings suggest growth will continue in 2017, albeit at a more modest pace," Adam Marshall, the BCC's director general, said.
"Inflation has emerged in our survey as a rising concern for many businesses. 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."
The BCC's survey - the largest of its kind - will be of interest to Bank of England policymakers.
Although they have said they are willing to tolerate some overshoot of their 2pc inflation target while the weak pound feeds through into prices, they have warned that there are limits.
Despite a sharp increase in inflation, the BCC said pressure on pay settlements remained low by historical standards - another sign that British wages in real terms were likely to drop sharply, or even shrink, later this year.
The BCC's measures of investment intentions increased slightly during the fourth quarter, albeit only after hitting four-year lows in the previous three months.
Still, businesses became a little more optimistic about the outlook compared with the previous quarter, even if confidence in both turnover and profit remained relatively low in comparison with levels over the past three years. Britain's economy looks on track to expand by more than 2pc in 2016 - faster than almost all other big advanced economies except perhaps the United States.
Economists polled by Reuters expect Britain's growth rate to more than halve in 2017 to 1.1pc.
The BCC surveyed more than 7,200 companies between November 7 and November 28.
Meanwhile, another closely watched indicator - the Markit/CIPS Services Purchasing Managers' Index for December - unexpectedly grew at the fastest pace in more than a year, reinforcing the economy's strength at the end of 2016.
"This improvement suggests that the next move by the Bank of England is more likely to be a rate hike than a cut," Chris Williamson, an economist at Markit, said.
Even so, with just months before the UK exit talks begin, business is in the dark about much of what Brexit really means.