Business confidence sinks to 1998 levels

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The Independent Online

Business confidence has sunk to levels last seen during the Asian crisis of 1998 following declines in sales, orders, prices and profits during the last six months of 2001, according to a keenly watched study published today.

In a poll of more than 1,700 UK firms, the balance of companies expecting orders to increase during the first half of 2002 fell to zero from 23 per cent recorded in June.

The finding, in Lloyds TSB's twice-yearly Business in Britain survey, is the latest evidence that expectations held by business and industry of an economic recovery this year are less bullish than those in the financial markets.

The gloomy economic assessment has prompted firms to rein back on investment, with only 26 per cent increasing expenditure over the last six months and projected investment for the next six months is sitting at its lowest in the survey's 10-year history.

There was, however, encouraging evidence that the economic slowdown was having a limited impact on companies' cashflow, with only 21 per cent of firms reporting cashflow difficulties, the same level seen six months ago.

Michael Riding, Lloyds' managing director of corporate and commercial banking, said: "The low interest rate environment will help UK operators, although we have yet to see how the optimism of exporters will fare in the light of the introduction of euro notes and coins."

Mr Riding added that while business confidence was at its lowest since the Asia crisis in 1998, swift action in cutting interest rates succeeded in averting recession back then.