Huge debts 'squeezing profits of UK firms'

Sir Iain Vallance, the president of the Confederation of British Industry, warned yesterday of the growing levels of borrowing that UK firms are taking on, highlighting the burgeoning debts of his own company, British Telecom.

Sir Iain Vallance, the president of the Confederation of British Industry, warned yesterday of the growing levels of borrowing that UK firms are taking on, highlighting the burgeoning debts of his own company, British Telecom.

In his opening address to the CBI's national conference in Birmingham, Sir Iain said that company profits were being squeezed by price pressures and higher borrowings.

He said corporate debt had reached a 25-year peak. "My own sector, telecommunications, demonstrates this in spades," he said.

"Increasing competitive pressures have been exacerbated by the need to borrow heavily to buy a piece of the third-generation mobile licence action."

BT's debts are expected to reach £30bn by the end of this year, forcing it to consider a radical break-up plan and the flotation of some of its businesses, including the mobile phone division Cellnet. The company is due to give more details when it announces half-year results on Thursday.

Despite falling unemployment, low inflation and robust growth, Sir Iain said the health of the corporate sector as a "shade paler" than this rosy economic picture suggested.