High risk of recession feared as economic confidence ebbs away

The Lloyds Bank Corporate Markets Business Barometer “monthly snapshot” for December showed that pessimism is driven primarily by the euro zone crisis.

Lloyds said this implied that mitigating actions by policymakers ought to boost confidence.

Trading prospects fell across the UK although the Midlands and Wales were particularly weak compared with the North and Scotland, which fared slightly better.

Thirty per cent of companies said they were now more optimistic regarding economic prospects, three per cent up on November, but 53 per cent were pessimistic, six per cent up on November.

Trevor Williams, chief economist, Lloyds Bank Corporate Markets, said: “Our survey seems to indicate that companies in the UK are bracing themselves for a period of stagnant or even negative growth, with the euro zone crisis affecting confidence across the board.”

On a brighter note, the survey suggests that falling unit costs are helping firms to mitigate the impact on their margins from lower output prices.

“The economic outlook will depend on whether recent actions by European policymakers will help restore confidence,” said Mr Williams.

In the first half of 2011 confidence levels gathered momentum, but the summer proved a turning point as the euro zone crisis intensified and sent confidence on a downward trend for the rest of the year.