In services, capital expenditure climbed 5 per cent in the latest quarter to a level 10 per cent higher than a year earlier. This matches its record in 1989, at the height of the last boom.The gap between manufacturing and services is reflected in diverging regional economic performance, according to consultancy Business Strategies Ltd (BSL). Growth in services helped make London the fastest growing part of the country in 1996 despite a drop in manufacturing output, followed by the North, and Yorkshire and Humberside.Business services such as accountancy, computer services and consultancy are performing especially well, according to BSL's latest regional report. Research director Neil Blake said: "This will bring the capital's growth this year close to the peak of 4.6 per cent it achieved in the boom year of 1986."The consultancy joined other forecasters this week in warning that interest rates will need to rise soon after the election. Bridget Rosewell, BSL executive chairman and one of the Chancellor's independent advisers, said: "Even though inflation is currently on a downward path, robust growth this year is expected to stoke up problems for the future years.Interest rates would go up later this year, no matter who won the election.

She warned that a slowdown would follow in 1998 and the year after.Few City experts believe Kenneth Clarke will bite the bullet and raise interest rates after his 10 April meeting with the Governor of the Bank of England, because of the real risk that this would trigger higher mortgage rates just before the general election.Some analysts were sceptical about yesterday's official figures on manufacturing investment because they paint a picture so much weaker than business surveys would suggest.Kevin Darlington at Hoare Govett said under-recording of manufacturers' capital spending could explain why GDP measured as the sum of different kinds of expenditure had fallen behind the measure based on output.Economists also disagreed over how much manufacturing matters. Adam Cole at brokers James Capel said there was a real danger that weakness in manufacturing would undermine the balance of payments.On the other hand, David Hillier at BZW said it was sensible for the economy to focus on services. "We can't compete in manufacturing with tiger economies paying pounds 2 an hour.". The people of the Rust Belt held a beer-sodden picnic under the shimmering towers of Frankfurt's business district yesterday, staging the biggest demonstration since the war against the omnipotence of German banks.

Some 20,000 steel workers had made the 200-mile journey from the Ruhr to protest against the creeping Anglicisation of Rhenish capitalism, and against arbitrary deals struck in sky-scraper boardrooms that eliminate thousands of jobs on the factory floor. Their anger had been provoked by an un-German takeover bid hatched by the steel company Krupp and Deutsche Bank. Even though the prey, Thyssen, was taking large chunks out of its predator yesterday, the workers' fury was unabated. Tens of thousands had feared becoming unemployed as a result of the takeover, and now thousands employed by the two companies can look forward to redundancy because Krupp and Thyssen are merging "peacefully".The big banks, which sit on virtually every board, hold shares in almost every company and oil the wheels of the German model of capitalism while taking their hefty cut, emerge from the affair as the chief villains. Keeping foreign competition out of Germany was one thing, but financing one German company's raid on another just did not seem fair play.The gambit has to some extent paid off, because the two companies are being forced into a shotgun wedding It is big fish Thyssen that will swallow Krupp, bit by bit. The shares of both companies, though weak yesterday, finished much higher than their values before the takeover battle.Representatives of both confirmed yesterday that the companies would be forming a steel production joint venture, to be managed by Thyssen, and would explore other forms of co-operation short of a merger.

The details of their deal are expected shortly.It is victory of sorts for Krupp, which had tried in vain to convince Thyssen of just such a fusion for more than 20 years. Indeed Krupp, with a more anaemic balance sheet than its rival, was heading for the wall in any case. Compared with that fate, a merger on just about any terms might seem a triumph.However, the way the company went about ensuring its survival, and particularly the role played by the banks, outraged politicians and business leaders alike. The hostile takeover bid had brought the lawlessness of the "Wild West" to Germany, or "Casino Capitalism", in the words of Klaus Zwickel, head of the IG Metall trade union.. Japanese prosecutors yesterday raided the Tokyo headquarters of Nomura, the country's biggest brokerage, as an investigation into payments to a client linked to racketeers widened.

The highly public raids, preceded by tip-offs to the media that they were imminent, appeared to signal that the action against Nomura could become a showcase as Japan seeks to clean up business practices and deregulate its economy. In a bizarre scene officials in business suits, led by a man with a briefcase, marched military-style through the front doors of Nomura's head office.They firmly locked the doors, shutting out journalists gathered for a raid designed to have maximum publicity value.The late afternoon swoop was carried out by prosecutors and officials of the nation's securities watchdog, the Securities and Exchange Surveillance Commission (SESC). Coinciding with the headquarters raid, 90 more officials swooped on 10 other locations and for the first time spelled out the suspicions in detail.Deputy chief prosecutor Kunihiro Matsuo said the raids were to investigate a Nomura director's illegal payment of 38m ($309,000) to a company run by a relative of a racketeer to avoid disruption of a Nomura annual meeting. Mr Matsuo said the other raids included searches of the homes of the racketeer - or "sokaiya" - and the Nomura director involved, Shimpei Matsuki.The scandal surfaced on 6 March. Mr Matsuki and fellow director Nobutaka Fujikura resigned four days later after internal inquiries found they made discretionary deals banned under Japanese law and funnelled profits to a front company for the racketeer.Sokaiya, often linked to "yakuza" crime syndicates, extort money by threatening to expose dubious business practices or to disturb shareholders' meetings - "sokai" in Japanese.Nomura president Hideo Sakamaki stepped down on 14 March to atone for the scandal. He became an adviser to the company, and chairman Masashi Suzuki took over his position while retaining the chairmanship.Nomura, one of the world's most powerful financial institutions, exerts a powerful influence on the yen bond market and is also Japan's top foreign bond seller.The company has seen key foreign and domestic clients suspend business with it since the scandal broke.