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 per cent from plus 13 per cent in the fourth quarter, the British Chamber of Commerce (BCC) said.

The services sector also saw a jump, rising to plus 15 per cent from plus nine per cent over the period.

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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 per cent to plus 52 per cent.

The services sector also soared to levels not seen since the first quarter of 2011, stepping up from plus 20 per cent to plus 30 per cent.

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.”

Sterling remains around 18 per cent down against the US dollar and 11 per cent lower versus the euro since the EU referendum result.

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.

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.”