by business editor Trevor Sturgess

Business confidence in Kent and the south east has been dented by fears of rising prices and falling demand over the next few months.

Retailers and small firms are especially worried about the impact of the Vat rise yesterday, with retailers Next and HMV among big high street names reporting disappointing sales in the run-up to Christmas and the New Year.

Now the latest Business in Britain report from Lloyds TSB Commercial reveals that firms are worried about their prospects in the first half of 2011.

The survey of nearly 300 firms found that business confidence had plunged as many plan to freeze investment and put up prices to maintain margins in the face of rising costs.

More than half (54 per cent) say weaker home markets pose the greatest threat to their business..

The only upbeat findings concern export growth potential and an expectation that a double dip recession will be avoided.

Neil Mahoney, regional director for Lloyds TSB Commercial, said: "Businesses across the South East have seen strong growth over the past six months, and they were rightly confident about their prospects for the final months of this year. But this sense of optimism is starting to give way once again to concerns about domestic demand."

Yesterday, the Federation of Small Business said that 70 per cent of its members expect the 2.5 per cent Vat hike VAT rise to have a negative impact on their business.

However, John Lewis defied the gloom by today unveiling better-than-expected sales of £545m in the five weeks to New Year's Day, up 8.9 per cent on a year ago.

Electricals and home technology sales were 14.4 per cent up. Fashion, including beauty, was 8.7 per cent up whilst Home increased by 4.7 per cent, figures which the retailer believes reflect gains in market share in all categories.

Online sales for the five weeks were 42 per cent up on last year, reaching £500m for the first time.