British companies are more optimistic than at any time in the past 15 months after Europe, Japan and the US pledged to pump more money into the financial system, according to a key new survey that will raise hopes the UK could be emerging from its double-dip recession.
Just four days after the Office for National Statistics (ONS) said the economy shrank less than it first thought in the three months to the end of June, a report showed UK Plc's sentiment hit its highest level since July 2011 last month and suggested that optimism is likely to grow further.
Some 51 per cent of firms surveyed in September said they expected trading to improve in the next year, compared with 47 per cent in August. Only 8 per cent expect sales to deteriorate, according to the latest closely watched survey by Lloyds Bank Wholesale Banking & Markets Barometer.
"It is good to see that firms continue to feel confident in how their businesses are likely to perform over the course of the next year," said Trevor Williams, chief economist at Lloyds Bank Wholesale Banking & Markets. "A big jump in manufacturing output in August alongside continuing gains in employment support the rise in the barometer.
"Policymakers in the UK will likely continue to focus on underlying economic trends which our survey shows is consistent with the latest MPC [Bank of England monetary policy committee] minutes' suggestion of 'modest underlying expansion'," he added.
The report attributed the relatively strong confidence levels to the European Central Bank's new bond-buying programme, which proposed unlimited purchases of short-dated sovereign debt to boost the eurozone economy. The report also notes that the US Federal Reserve has announced a further round of quantitative eassing (QE3) – a method of pumping money into the financial system – since the survey was taken "which may have lifted confidence further".
The Lloyds report provides another dose of good news after the ONS revised its forecast of the UK's second-quarter gross domestic product to a 0.4 per cent drop – from its previous estimate of 0.5 per cent and its initial estimate of a 0.7 per cent decline.
On the same day, Bank of England policymaker Paul Fisher said the Bank expected that gross domestic product in the third quarter – the three months to the end of September – was "very strong", although at least part of the improvement will come from the unwinding of the Diamond Jubilee effect. The Queen's Diamond Jubilee in the second quarter dragged down sales in the period by introducing an extra bank holiday.
"Data from this survey shows that the economy is likely to be emerging from the double-dip recession, which began in the fourth quarter of 2011," the Lloyds report notes.
The Lloyds report also looked at the confidence of British business about the UK economy as a whole, and found it to have remained steady last month, after a sharp rebound in August.
Although sentiment overall remained steady last month, the survey showed a slight increase in confidence among service companies last month compared with the previous month, and a slight decrease among manufacturers.