Business confidence in London rose to its highest level since May last year as companies across the country remained optimistic about the UK economy.
Business confidence in London rose 20 points to 52 per cent during August, according to the latest Lloyds Business Barometer.
About 56 percent of companies were confident about their prospects, while 46 percent were optimistic about the broader economy, up 27 points from the previous month.
Across the country, business confidence rose 10 points to 41 percent in August, its highest level since February last year, with all sectors reporting positive readings in August.
Confidence among retail companies rose to an 18-month high of 44 percent, while it rose to a 22-month high of 42 percent among service companies.
“The jump in economic optimism this month is an extraordinary point,” said Han-Ju Ho, senior economist at Lloyds’ commercial banking division.
“Our analysis shows that businesses are relieved that interest rates may be nearing their peak, with expectations that measures to combat inflation are having an effect,” Ho continued.
The Bank of England has raised rates 14 times in a row, taking it to its highest since the financial crisis at 5.25 per cent. Rising rates raise the cost of borrowing, which reduces demand for businesses and increases the cost of financing.
Many experts now expect the bank to hike rates once more at its September meeting, bringing the base rate to 5.5 per cent.
Despite the most aggressive austerity cycle in decades, the UK economy has performed better than many economists predicted. Britain has managed to avoid recession with the economy growing by 0.5 percent in June.
However, recent PMI data, which surveys the health of the private sector, has raised the prospect that the UK may be slipping into recession after showing a sharp contraction in activity in July.
The manufacturing sector in particular has been hit hard by the global slowdown, with confidence falling for the second month in a row.
“Large companies and manufacturers are experiencing some degree of caution, which is likely to reflect the broader global economic environment and the rotation of spending from manufacturing to services,” Ho said.