Business sentiment growing more confident

Britain's businesses feel more confident about their prospects than at any other time in the past 12 months, figures to be published today reveal, providing further evidence of improving sentiment in the economy as the slowdown at least bottoms out.

Lloyds Banking Group's monthly "Business Barometer" shows that business confidence improved in May for the third month running; that there has been an increase in the number of companies expecting better business conditions this year; and that firms are finally beginning to have some faith in the UK's economic prospects.

Lloyds' figures reveal that 44 per cent of companies are now expecting business activity to increase, up from 35 per cent in April, while the proportion predicting a deterioration in their trading environment fell to 16 per cent, compared to 21 per cent the previous month.

That means the balance for May – the way in which the survey measures confidence – doubled to 28 per cent, the best figure since this time last year, well before the recession began.

Moreover, the improvements in business sentiment appear to have come from across the economy and are replicated in most parts of the country. Businesses in both the industrial and services sectors reported more upbeat views, with the latter particularly optimistic.

Similarly, while businesses in the Midlands are registering bigger gains in sentiment than elsewhere in the country, the picture is also improving in every other area of the UK.

The upbeat tone of Lloyds' latest survey reflects the publication over the past month of a series of more positive economic indicators, though leading economists are cautious, pointing out that most data points to a slowdown in the rate of decline, rather than growth.

Still, Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said there were reasons to be cheerful.

"While it would be premature to talk of an end to the recession, we should be careful not to overlook the significance of the growing confidence we are witnessing among businesses," he said. "Confidence is always the foundation on which any recovery is built. We've now seen three consecutive months of growing optimism amongst UK businesses – and if this persists over coming months the recovery should not be too far behind."

That said, last week's unexpectedly strong figures for the performance of the services sector in May from the Chartered Institute of Purchasing and Supply, which did show a return to growth, may not be replicated elsewhere in the economy for a little time yet.

The next economic data offering a snapshot of the UK's economy comes on Thursday with the publication of the official industrial production figures for April. Analysts at Moody's predict a 0.3 per cent fall compared to the previous month.