Rates likely to remain on hold despite signs of growth

Further evidence of Britain's improving economic prospects are revealed today with surveys showing healthy order books in manufacturing, improving confidence in services and renewed optimism in the venture capital industry. However, economists believe the Bank of England's Monetary Policy Committee will keep interest rates on hold when it meets this week for fear of damaging the recovery with a rise.

The BDO business trends report highlights healthy order books in February with inflation staying under control. The BDO Output Index, which claims to be an indicator of GDP growth a quarter ahead, showed signs of a rally, rising from 98.7 in January to 98.9 in February. Manufacturing was the most robust sector helped by a fall in sterling and a rally in the euro. Large companies led the growth, the report says.

Stephen Green, at BDO Stoy Hayward, said: "Although parts of the economy appear shaky, we are moving further away from the threat of recession and glimmers of hope from large businesses will help other sectors of the economy. We expect to see inflation kept at bay prompting the MPC to think twice about increasing interest rates."

The trends were supported by the latest quarterly survey from the CBI showing the first rise in business confidence in the services sector for a year. Business volumes fell over the past three months but at a slower rate than previously. Over the next three months consumer services companies expect the slowdown to level out while business and professional services firms anticipate the first increase since May last year. Ian McAfferty, CBI's chief economic adviser, said the survey painted a mixed picture. "Firms are getting more confident about long-term business prospects, but at the moment they are still having a rough ride. Business volumes may be bottoming out but prices, costs and profits remain under pressure."

Meanwhile, venture capitalists are more optimistic about economic conditions than at any time for three years. And they are preparing for an upturn in deal-making activity, according to a new survey by Deloitte & Touche. Its latest quarterly study shows a big surge in optimism since December. Little more than a quarter of those questioned thought the economy would deteriorate further, compared with 82 per cent three months ago.

A majority also foresaw a recovery in the initial public offering markets.