(Bloomberg) -- More than half of UK company bosses are optimistic about their business prospects this year as concerns about inflation and political instability start to recede, according to the Institute of Directors. 

A poll of more than 900 business executives found that overall optimism was the best it has been since Russia invaded Ukraine in February last year, with 24% believing inflation has already peaked and more than 50% confident it will be falling by summer.

Meanwhile, a quarter of respondents were optimistic about the UK economy in general, up from just 10% in November, the survey found. An overall economic confidence index rose to minus 28 in January from a near-record low of minus 58 in December.  

The survey stands in contrast to forecasts for a recession this year and raises hopes that the UK may withstand high interest rates and sticky inflation better than expected. The International Monetary Fund, the Bank of England and the Office for Budget Responsibility all expect the UK economy to contract in 2023.

 

A number of recent surveys have hinted that the outlook may be brightening. Lloyds Banking Group found confidence improving on the prospects of falling inflation. Employers also stepped up hiring plans in the first week of January, according to the Recruitment & Employment Confederation.

However, consumer confidence remains historically poor and the Confederation of British Industry reported that private-sector activity fell over the winter due to strikes, staff shortages and the cost-of-living crisis.

Kitty Ussher, chief economist at the IoD, said: “This welcome improvement in how business leaders view the UK economy is largely due to a period of relative political calm up to the end of January. Similarly, while inflation is still causing considerable concern, around a quarter of our members now believe it has peaked.”

The IoD survey, carried out in the second half of January, found that business investment plans are recovering, albeit weakly, with more companies planning to increase spending than plan to cut back.

 

“With the index still in negative territory, this month’s improvement is not enough to cause greater investment on the ground,” Ussher said. 

“The government needs to do more to sharpen investment incentives in capital, people and net zero in the forthcoming budget to get our economy back on to a firm path towards growth.”

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