The quarterly report shows that the percentage of firms working below capacity fell from 81% to 48%, the lowest since January 1998.

Growth in gross domestic product of 3.7% was the highest since the second quarter of 2000 although according to Directions, stretched manpower resources stopped firms from taking full advantage of the conditions. Some respondents intend to increase staff to add an additional shift and to mitigate the increased cost of overtime. This was due to increased workload and the need to cover holidays and absenteeism.

"This is a much more positive report," said Directions author economics analyst David Ross. "The signs are that the Christmas period will be an even busier one than the summer and, more significantly, it will be better than 2003."

71 respondents out of 96 believe that margins will be either better or the same in the coming three months compared to the same period last year.

Story by Philip Chadwick