More than half UK firms 'are more pessimistic'

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The Independent Online

Corporate Britain's confidence in the stability of the UK economy fell to its lowest level in five years last month, with more than half of all UK firms claiming they feel more pessimistic about the economic outlook than they did three months ago.

According to Lloyds TSB's latest business barometer, some 51 per cent of companies believe the prospects for the UK economy are looking poor in 2008 the lowest level since December 2002. The survey also shows the deterioration in confidence has been rapid, with only 28 per cent feeling more pessimistic about the economy in November, compared with the 51 per cent in December.

Surprisingly, however, there was a small increase in the percentage of businesses claiming they expected business levels to increase over the next 12 months. Almost one in four companies said they expected better trading in 2008, while only 8 per cent said they expected a decrease.

Trevor Williams, the chief economist at Lloyds TSB Corporate Markets, said: "While there has been a steady trend towards economic pessimism during the last four months, firms became far more cynical in December. This would indicate the UK is set for a period of below-trend growth but the Bank of England's decision to start cutting interest rates could still reverse the spiral.

"The strengthening of the euro and sterling's subsequent rise in competitiveness have enhanced expectations for exports. This, in addition to UK firms' pro-gress in meeting growing emerging market demand for goods and services, has boosted confidence. Only distribution sector firms are less confident about their own activity."

Mr Williams added that while slower house price growth and tighter credit conditions had weakened the economy, there was every chance that further cuts in interest rates in the first quarter of the year could help restore business optimism.

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