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A record number of businesses are expecting inflation to rise, a survey has found, with many signalling an intention to pass increased costs onto consumers.

The BDO Stoy Hayward Business Trends report found inflation expectations among businesses polled leapt once again this month from 111.8 in January to 113.7 in February, an all time high for the index which has been running since 1998.

The high inflation expectation figures will give the monetary policy committee cause to hesitate before making further interest rate cuts, the accountancy firm said.

However, the BDO optimism index, which looks at business confidence two quarters ahead, remained unchanged in February at 101.1. This indicates that medium term business confidence remains robust.

The combination of the robust optimism index and high inflation index may suggest that businesses feel the economy is sufficiently strong for rising input costs to be passed onto consumers.

Peter Hemington, partner at BDO Stoy Hayward, said: "Businesses are telling us that sales are stuttering and orders falling. However, the data also suggests that business people still expect only a modest slowdown in the economy in 2008.

"And with inflation expectations at a record high, the MPC is faced with a tough balancing act.

When they meet next week, it's likely they will approach further interest rate cuts with extreme caution."

The BDO Business Trends Report Indices are calculated by taking a weighted average of the results of all the UK's main business surveys carried out during the last month.