The British Chambers of Commerce said confidence among manufacturers in most areas has risen to its highest level since before the 1997 election.

But the service sector showed sharp differences between the north and south in the third quarter of the year, said the chambers' report.

Scotland saw a sharp upturn in sales growth, but service sector firms reported the worst decline in domestic sales of all other parts of Britain.

North east manufacturers reported high domestic sales growth but service sector firms reported the worst decline in domestic sales of all other parts of Britain.

North west manufacturing saw a considerable improvement but service sector sales growth also compared poorly with other parts of the UK.

Manufacturers on Merseyside performed relatively well at home but suffered the worst export sales and orders decline of any area.

By contrast, Thames Valley manufacturers and service sector companies performed well with rises in both domestic and overseas sales.

London manufacturing's performance improved but the growth was far outstripped by the service sector, which continued to thrive in both domestic and overseas markets.

In southern England, manufacturing succeeded overseas, while the service sector continued to improve in both domestic and export sales. Both sectors are recruiting new staff.

Dr Ian Peters, Director General of the British Chambers of Commerce, said the Bank of England cannot please all areas of the UK with interest rate policy. He warned against tax cuts, which would force up interest rates.