Business confidence in London surged to its highest level since May last year, as firms around the country were increasingly optimistic about the UK economy.
Business confidence in London rose 20 points during August to hit 52 per cent, according to the latest Lloyds Business Barometer.
Some 56 per cent of firms were confident in their own prospects while 46 per cent were optimistic about the wider economy, up 27 points on the month before.
Across the country, business confidence jumped 10 points in August to 41 per cent, its highest level since February last year with all regions reporting a positive reading in August.
Confidence among retail firms hit an 18-month high at 44 per cent while among service firms it hit a 22-month high of 42 per cent.
“The bounce in economic optimism this month is the standout point,” Hann-Ju Ho, senior economist at Lloyds’ commercial banking division, said.
“Our analysis shows that businesses felt relief that interest rates may be reaching their peak, alongside hopes that measures to tackle inflation are having an impact,” Ho continued.
The Bank of England has hiked rates 14 times in a row, bringing it to a post-financial crisis high of 5.25 per cent. Rising rates put up the cost of borrowing, both reducing demand for businesses and putting up the cost of financing.
Many experts now expect the Bank to hike rates just once more at its September meeting, bringing the base rate to 5.5 per cent.
Despite the most aggressive tightening cycle in decades, the UK economy has fared better than many economists had predicted. The UK has managed to avoid recession with the economy growing by 0.5 per cent in June.
However, more recent PMI data, which surveys the health of the private sector, raised the likelihood that the UK could tip into recession after showing a sharp contraction in activity in July.
Manufacturing in particular has been hit hard by the global slowdown, with confidence falling for a second consecutive month.
“Large firms and manufacturers are experiencing some degree of caution, which is likely to reflect the wider global economic environment and, for manufacturing, the rotation of spending towards services,” Ho said.