UK firms should have little trouble coping with increased interest rates, according to a survey which shows business confidence running at 12-year highs last month after a good year in which Scottish players were in particularly good form.

Research for Lloyds TSB's Business in Britain report found UK business confidence at the end of last year was higher than at any time since 1994, when the UK was coming out of the depression of the early 1990s.

The bank found that sentiment had improved markedly since the start of the year, following 12 months in which firms had enjoyed their best sales performance for a decade.

With markets in good shape at home, overseas firms were able to take advantage of strong demand to increase prices, providing a boost to profitability.

Sustained increases in business during the year left many firms sitting on bulging order books as 2006 drew to a close.

Following a series of reports in recent weeks which have indicated the country enjoyed above-trend growth in 2006, the Lloyds TSB survey provides further evidence that Scotland plc had a happy time of it.

The UK confidence index, measuring expectations for orders, sales and profitability, increased to 37, from 19 in December 2005. In Scotland the index score was 39.

The bullish mood followed a year in which 60% of Scottish respondents increased sales, compared with 55% across the UK. Some 53% increased orders against 49% in the UK.

The survey findings indicate that economists' predictions that firms could be hit by a slowdown in the US and eurozone economies in 2007, had not concerned executives.

They suggest that companies are trading well enough to be able to absorb the surprise quarter-point increase in base rates, to 5.25%, made by the Bank of England last week.

In the Lloyds TSB survey, which covered 2541 firms with a turnover of more than £1m, 81% of respondents expected at least one increase in interest rates.

Diana Brightmore-Armour, chief executive of corporate banking at Lloyds TSB, said: "UK firms weathered the difficult trading environment of the last two years by cutting production costs and increasing their efficiency. This has put them in a great position to exploit the improved market conditions."

She said that Lloyds TSB expected 2007 to be another good year for UK company profits, with the service sector leading the way.