Surveys show rise in business confidence, despite doomsayers

Boost in short-term confidence bucks trend of sharp monthly falls

Several business confidence surveys published today indicate that sentiment, though still weak, may have stabilised in some sectors of the economy, adding weight to the argument of those that contend the recession is reaching a nadir.

On the back of recent gains in share prices, which last week took the FTSE 100 above 4,000 points for the first time since the middle of February, there are signs of optimism. But businesses say that trading conditions are still largely fragile and that more severe job cuts are likely before the economy starts to grow again.

The findings of several groups, including Lloyds TSB and BDO Stoy Hayward, come a day after the Chancellor, Alistair Darling conceded that the recession will be deeper and longer than he first predicted.

Short-term business confidence has registered a second consecutive increase in March, according to the latest business trends report by BDO Stoy Hayward, the accountants and business advisers. While a climb in the report's output index, which measures short-term confidence based on order book strength and turnover expectations, is extremely modest – from 88.3 in February to 88.6 in March – it does reveal an end to the trend of sharp monthly falls. This, says the group, indicates that even though businesses expect the economy to continue to contract in the next quarter, the pessimism experienced at the end of the year has now diminished.

"Until now, confidence has been in freefall, and while conditions in the employment market will worsen in the coming months, some businesses are starting to view the future with less trepidation. The indicators suggest that we are unlikely to face a 1930s-style depression," said Peter Hemington, a partner at BDO Stoy Haywood.

According to the Lloyds TSB Business Barometer, confidence across most sectors of the economy remains weak. The survey, which took the views of businesses in March, showed the balance of firms that expected higher, rather than lower, activity levels over the next 12 months increased one percentage point to minus four per cent in February.

Despite the marginal improvement, the bank said that "business confidence among industrial firms surprisingly jumped in March to 13 per cent, up 42 percentage points from February, possibly reflecting a weaker currency".

However, the survey also revealed that for the 16th consecutive month, a majority of companies suggested that they were pessimistic about the outlook for the economy.

"These figures suggest the economic situation is still deteriorating, but the pace of decline is easing. Our findings mirror those of other recent surveys, suggesting there will be further deep contraction in UK economic output in coming months [despite the slight uptick in confidence]," said Trevor Williams, the chief economist in Lloyds TSB's corporate markets division.

Good news in some sectors of the economy is not replicated in the construction industry, however. The Construction Products Association, which represents the makers and suppliers of materials for the construction industry, announced today that the industry started this year with its sharpest falls in output since 1980. The group also forecasts that the industry will suffer a 12 per cent fall in output this year, the worst performance on record. The report, which says that the rate of decline will slow in 2010, predicts that there will be no growth in the sector for another three years.