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Businesses feel more confident about the future

Businesses feel more upbeat about the economy and their own trading prospects, according to the end-of-year report from the Commercial Banking Business Barometer published monthly by Lloyds Bank.

It suggests the probability of a triple-dip recession is at an eight-month low.

The survey results in recent months are consistent with the return to gradual growth in early 2013 predicted by most economists, following several months of flatlining towards the close of 2012. The lift in confidence sprang mainly from the retail, distribution and other services sectors.

The sentiment of business regarding trading prospects continues to improve, almost reversing the 17-point fall in the barometer witnessed in October, while confidence in the health of the economy is at an eight-month high.

On trading prospects, the net balance, which weighs the percentage of firms positive about their own trading outlook with those that are negative, increased by five points to 40% in December, with negative responses falling from 8% in November to just 4%.

"This lift in sentiment is likely to be explained by greater optimism regarding global and euro area trading prospects, as well as by the likely impact of recent UK policy measures on the supply of finance," Lloyds says.

Businesses' expectations suggest a decline in probability of an upcoming triple-dip recession (two quarters of negative growth) to 11% this month from 17% last month, the lowest level since April. The calculation is based on the previous relationship between survey responses and reported growth.

When asked about prospects for the economy, the share of companies that are optimistic rose five points to 47% – but pessimists also rose by 2% to 27%.

While the retail and distribution sector rose 13 points to 47% for business confidence, and the services sector rose eight points to 43%, the industrial sector fell five points to 30%.

Smaller firms with a turnover of £1m to £5m and £5m to £20m saw confidence rise five and 18 points respectively to 38% and 47%.

Trevor Williams, chief economist of Lloyds Bank Commercial Banking, said: "The upward momentum in confidence in the past two months, if sustained, would point to a return to growth in the early stages of 2013, though external risks remain, including continuing issues in the euro area and the US fiscal cliff.

"Nevertheless, as we end the year, it is good to see businesses in a more upbeat mood about the economy and their own trading prospects."

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