The UK economy will grow at a 'modest pace' in 2017 thanks to strong performances from manufacturing and service firms, business leaders predicted today.

Despite the cost pressures of the Brexit-hit pound, the British Chamber of Commerce revealed that manufacturing firms witnessed a rise in domestic sales with transactions shifting from plus 13per cent to 15per cent in the fourth quarter.

Meanwhile, the services sector also saw a jump, rising from plus 9per cent to plus 15per cent over the same period and activity in the construction industry expanded at its fastest rate in nine months at the end of last year.

Experts predict that the British economy will witness growth at a 'modest pace' in 2017 thanks to strong performances from manufacturing and service businesses

However, the BCC's quarterly economic survey warned that firms were facing mounting pressure to hike prices as higher import costs were setting in as a result of the sterling's slump.

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 31per cent to plus 52per cent.

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

'Overall, our findings suggest growth will continue in 2017, albeit at a more modest pace.'

The British Chamber of Commerce revealed that manufacturing firms witnessed a rise in domestic sales with transactions shifting from 13per cent to 15per cent in the fourth quarter

Sterling remains around 18per cent down against the US dollar and 11per cent 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 2.7per cent in 2017, while influential think-tank the National Institute of Social and Economic Research has said it could hit almost 4per cent 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 16per cent in the fourth quarter from plus 17per cent in the third quarter.

The number of manufacturers facing trouble recruiting surged from 64per cent to 76per cent over the period.

It added that the number of manufacturers and services sector companies expecting their turnover to increase rose from plus 36per cent to plus 43per cent and from plus 28per cent to plus 35per cent respectively.