Companies are more pessimistic now about the British economy than at any other time in the past five years, a survey by Lloyds TSB showed.
The survey of 200 companies, released yesterday, showed that just over half were pessimistic, with only one in three expressing confidence.
Despite the gloomy response, half the respondents were more confident about the level of their own business activity.
"While there has been a steady trend towards economic pessimism during the last four months, firms became far more cynical in December," said Trevor Williams, chief economist at Lloyds TSB Corporate Markets. "This would indicate the UK is set for a period of below-trend growth, but the Bank of England's decision to start cutting interest rates could still reverse the spiral."
Williams said interest rate cuts in the next few months would restore optimism to British business.
The Bank of England will decide this week whether to change interest rates, weighing fears of a sharp slowdown in the housing market against rising inflationary pressures.
The bank cut rates by a quarter of a percentage point to 5.5 percent last month from a six-year high of 5.75 percent amid signs the British economy is slowing, hit hard by the worldwide credit squeeze that was sparked by the collapse of the US subprime mortgage market.
On Sunday, British Prime Minister Gordon Brown said his government's move to limit public sector pay increases had helped keep Britain's economy stable as it enters a year of global economic turbulence.
Brown said in an interview with the BBC on Sunday that the world faces a difficult year ahead, but that he is "cautious but positive" about the economic prospects based on Britain's record of low inflation, high employment and economic stability over the past decade.
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