UK economy shows signs of beating double-dip recession

A FLURRY of surveys will today show that confidence is rising across a number of sectors, raising hopes that the UK may avoid a double-dip recession when economic growth figures are published later this month.

Optimism among financial services firms has risen for the first time in a year thanks to the eurozone debt crisis easing, according to the quarterly survey of the sector by the CBI and accountancy firm PwC.

Confidence among chief financial officers (CFOs) about their companies’ finances has risen at the fastest rate since accountancy firm Deloitte’s CFO survey began in 2007, taking it close to levels seen in late 2010.

Meanwhile, the business barometer compiled by Lloyds Bank’s Wholesale Banking & Markets division rose to a nine-month high last month as 51 per cent of companies said they were now more optimistic regarding economic prospects, the first time since June that a majority of respondents was positive about the UK outlook.

Trevor Williams, chief economist at Lloyds Bank’s Wholesale Banking & Markets arm, said: “This month’s acceleration in confidence about UK economic prospects supports our view that concern about the eurozone debt crisis was a major contributor to the sharp decline in sentiment at the end of 2011.

“Indeed, the rebound in confidence mirrors the fallback in market concerns over the potential fallout from a Greek default since December. The results also provide strong support to our contention that gross domestic product [GDP] will expand in the first half of 2012.”

While Deloitte’s quarterly survey noted a recovery in confidence from December’s lows, CFOs are still more likely to adopt “defensive” policies over the next three months – such as conserving cashflow or cutting costs – than launching products or taking part in mergers and acquisitions (M&A).

Ian Stewart, Deloitte’s chief economist, said: “Having been wrong footed by a weakening of the economy in 2011, UK businesses may need more evidence that the recovery is on track before committing to more expansionary policies.”

Companies may be reluctant to take part in M&As but figures also released today by credit ratings firm Experian will show that Scotland posted a 15 per cent rise in the number of M&As during the first quarter of 2011, bucking the UK trend for a 20 per cent fall.

Any pick-up in M&A activity would come as a boost for the financial services sector, where investment banks and their legal and accountancy advisers have been hit by a dearth of deals since the financial crisis.

Confidence continues to rise in the financial services, though. Ian McCafferty, the CBI’s chief economic adviser, said: “Financial services sales volumes and income continued to rise this quarter, putting the sector’s recovery on a firmer footing.

“Optimism levels and business investment intentions have also improved, in contrast to last quarter, as some of the worst risks around the euro-area crisis have eased. An unexpected rise in employment is a further encouraging sign for the sector. But, with the current level of business regarded as below normal, conditions still remain challenging for financial firms.”

But jobs growth may stall, with a survey by recruitment firm Astbury Marsden today warning of a drop last month in the number of City roles being advertised.