Confidence about trading prospects among UK firms increased during July, but businesses were less optimistic about overall economic conditions, new research has found.
Some 65 per cent of firms forecast an upturn in trade over the next year, according to the latest business barometer published by Lloyds TSB.
A further 24 per cent said they expected to maintain current levels of trading, while just two per cent of businesses said they expected a fall in trade over the next few months.
But despite rising expectations of an upturn in trade, Lloyds TSB said that firms remained "surprisingly pessimistic" about the UK's general economic conditions. Just 23 per cent more businesses said they thought things would improve compared to those who predicted the situation would worsen, a fall from a balance of 31 per cent in June.
The survey, of more than 200 UK companies with a turnover of more than £1 million, found that smaller businesses were the most optimistic about their trading prospects.
Of those companies with a turnover of between £1 million and £5 million, 67 per cent reported higher than lower confidence in July, representing a ten per cent rise compared to June's figures.
Companies within the services and distribution industries were most confident of the various business sectors analysed. Some 71 per cent of service companies, including retailers, said they expected an upturn in trade over the next 12 months, while 75 per cent of distribution firms also expected a rise.
Regionally, companies in the Midlands reported the largest resurgence in business confidence, with the percentage of firms feeling optimistic about the economy rising by 27 per cent between June and July.
Companies in the Midlands were also slightly more optimistic about their own activity than businesses in other regions.
Across the Midlands, 69 per cent of firms said they anticipated a rise in activity, compared to 66 per cent in the south of England and 61 per cent in the north.
Responding to the results, Trevor Williams, chief economist at Lloyds TSB, said the second consecutive monthly increase in business confidence suggested that economic growth in the third quarter of 2006 could be as strong as that reported for quarter two.
"This is the second consecutive month the business confidence balance has been above the survey average, indicating that growth in the UK economy in quarter three may be as strong as in quarter two, when provisional data suggested it grew by 0.8 per cent or a 3.2 per cent annual rate," said Mr Williams.
"The current strength of the housing market will still help lift consumer spending growth despite the headwinds of higher utility bills," he added.