UK recovery ‘real’ but rate hike uncertainty looms

UK services exports hit record high

The U.K.'s economic recovery is still on a strong footing with businesses poised to spend and hire, a survey by the British Chambers of Commerce (BCC) showed.

Responses from 7,479 businesses to the BCC's Quarterly Economic Survey showed six key manufacturing indicators, including employment expectations and domestic orders, hit all-time highs in the first quarter of 2014.

Export sales and orders in the services sector also beat their fourth-quarter highs, confirming the U.K. is on track for a steady recovery.

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The report comes just weeks after the U.K. Chancellor George Osborne unveiled an upgrade in growth forecast to the country's economy for this year, which is now predicted to grow 2.7 percent from the previously expected 2.4 percent. Britain's GDP grew 1.7 percent in 2013.

"The survey is very good news. It shows an economy which is growing at a satisfactory pace. It shows business confidence is strong," David Kern, chief economist at the BCC told CNBC in a phone interview.

"There is a recovery, it is real and businesses are eager to continue."

Kern added that while the recovery has so far been driven by consumer spending, it is now time to move to a balanced economy based on exports and investment.

The BCC survey is the latest in a line of strong data for the U.K. Earlier this month, the Markit/CIPS services and manufacturing purchasing managers' index both dropped but remained well above the 50.0 level that signals growth.

Businesses are also keeping an eye on the Bank of England amid uncertainty over when an interest rate hike will take place. Mark Carney, the governor of the central bank, told a British newspaper that an interest rate rise could take place before the next U.K. general election in 2015.

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The BCC however expressed concerns about the uncertainty over the timing of the rate hike as well as access to finance which it says is holding back expansion.

"We are enjoying a very happy situation where both interest rates and inflation are very low and it's important to maintain this situation for as long as possible," Kern said.

"We realize it's not possible to maintain interest rates at the current level indefinitely, but there is no justification to put up rates at the present time."

Britain's economy still faces some issues, however. The current account deficit in the final quarter of 2013 was £22.4 billion ($37.2 billion), just a touch lower than the £22.8 billion all-time high hit in the third quarter. The U.K.'s current account deficit was £71.1 billion in 2013 equating to 4.4 percent of gross domestic product.

Despite this, economists are still bullish on the outlook for the country's economy.

"Disappointingly we haven't had much good news from the external sector with the current account widening," Samuel Tombs, U.K. economist at Capital Economics said in a phone interview.

"But we are relatively optimistic and we think that the recovery is largely sustainable."