UK investment in business improved sharply in the final months of 2006 official figures show, with boardroom confidence reflecting the strong economic conditions prevailing in the country.

The Office for National Statistics (ONS) showed that expenditure in the fourth quarter rose 3.3% on a quarterly basis, up 11.1% on the previous year.

Some analysts voiced fears that rising interest rates would depress capital spending by firms, but the Bank of England is confident that the rate of investment will beat economic growth.

“To my eyes, the UK investment scene is looking very healthy at the moment, and the energy and utilities sectors are also driving things along at a fair lick,” said City analyst Colin Perry.

“I am pretty confident that business investment will remain strong in the short- to medium term, and that even with any further possible interest rate rises, things will stay healthy.

“I have to say, however, that profit margins are still being considerably squeezed by intense competition and high input prices,” he concluded.

The ONS noted that expenditure by manufacturing firms in particular fell by 4.5% in the period, suggesting that these firms were finding it tough going in the prevailing economic climate.