Gloom deepens among UK firms

Two separate surveys today reinforce the gloom enveloping UK businesses, as they face the toughest trading environment since the early 1990s.

The Lloyds TSB Business Barometer found that in July companies' confidence in trading prospects plummeted to its lowest since the survey began in 2002, while the Institute of Chartered Accountants (ICAEW) also revealed tumbling confidence in the last quarter.

Lloyds TSB said that the balance of firms who believe their trading activity will increase, rather than decrease over the next 12 months, has fallen to +22 per cent – a 10 per cent drop on June and well below the average of +51 per cent since 2002.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, blamed the rising cost of raw materials and weakening export prospects in the slowing European market, despite a weaker pound. He said: "There's a strong balance between business confidence and the actual performance of the economy. And, with so many firms remaining downbeat, we can expect UK economic growth to remain weak well into next year."

Firms in the services sector suffered the biggest monthly drop in confidence, down by 24 per cent to +27 per cent.

The ICAEW's Business Confidence Monitor revealed a drop to -25.7 per cent for the three months to 30 June from 19.7 per cent in the previous quarter, in terms of companies which are "slightly less" or "much less" confident about their prospects.

Robin Fieth, ICAEW's executive director of operations and finance, said: "We are seeing a new realism among businesses ... with projected staff and capital investment both significantly down on this time last year."