Small business are more optimistic for first time in a year

Confidence among small businesses has risen for the first time in more than a year despite a further slump in orders, output and jobs, a survey shows today.

Confidence among small businesses has risen for the first time in more than a year despite a further slump in orders, output and jobs, a survey shows today.

The CBI, the largest employers' group, says the optimism recorded last month is a sharp recovery from the deep pessimism recorded in the prev- ious survey.

A third of businesses are more optimistic about the business outlook compared with 19 per cent who are gloomier, leaving a balance of 14 per cent. This compares with a negative balance of 27 per cent in January.

Export optimism also reversed its negative trend, rising from minus 24 per cent five months ago to plus 8 per cent now. Companies expect a modest increase in orders and output over the next four months.

However, the optimism contrasts sharply with how small companies say their businesses have performed over the last four months.

Orders and output fell again, marking a full year of decline while companies continued on their long-term cut in employment levels.

The CBI says the survey mirrors a pattern across the corporate sector, with confidence increasing but offic- ial data showing little sign of recovery.

Last week figures showed that manufacturing industry contracted in March at its fastest rate for a decade while the whole economy is believed to have grown by just 0.1 per cent in the first quarter of the year.

Simon Bartley, chair of the CBI's small business council, said: "Fragile hopes for a prosperous future are yet to become a reality, with no sign yet of a return to job creation." He added that the Bank of England should not "stifle" a potential recovery from raising interest rates too early, especially as businesses face a 1 per cent hike in their national insurance contributions next April.

Economists are increasingly baffled by survey evidence pointing to a strong recovery at a time when parts of the economy, especially manufacturing, are showing little growth.

Michael Saunders, at investment bank Schroder Salo- mon Smith Barney, said the discrepancy was "particu- larly marked".

"Over time surveys usually have proved to be fairly reliable guides to the economy's prospects," he said.

"Put simply, we put more weight on the message from surveys – that a strong recovery is under way – than the weakness evident in GDP growth."

Analysts eagerly await the Bank's quarterly inflation report published on Wednesday, which will contain the latest forecasts for growth and inflation and provides the best guide for the path of inter- est rates.