But views were mixed with 40% stating that they were ‘quite pessimistic’ about the economy, against 42% who were ‘quite optimistic’. Just 2.4% were ‘very optimistic’ about the general economy, revealed a survey by the Institute of Directors. However, when asked how their own companies would perform, 42% were ‘quite optimistic’.

Less than half expected to increase investment in the next 12 months with 40% likely to keep investment at 2023 levels, although more than a third (36%) expected investment to be ‘somewhat higher’, while 50% were optimistic about the revenue for the year.

The majority (67%) of businesses predicted that costs would rise ‘somewhat higher’ while the impact of the increase in the national living wage rate from April was feeding through to concerns about 2024, with 62% concerned about rising staff costs. When it came to headcount, over 50% expected staff numbers to flatline.

Dr Roger Barker, director of policy at the Institute of Directors said: ‘Although aspects of the business environment have improved in the last couple of months, particularly about inflation, this is not yet exerting a meaningful impact on business decision-making.

‘Business leaders remain extremely cautious about the outlook for the wider economy over the next 12 months, although they are more optimistic about the prospects for their organisations.’

As well as reasonable levels of confidence across small to large businesses, KPMG found that 87% of senior executives working in the financial services sector were ‘confident’ when it came to overall business growth in the first quarter of 2024, supported by a buoyant outlook on profitability for the quarter (83%).

Karim Haji, partner and head of financial services said: ‘While on the surface leaders seem less concerned about the specific impact of geopolitical uncertainty, there’s no denying that it is in part adding to inflationary and interest rate pressures.

‘With interest rates set to stay high in a bid to tackle persistent inflation, combined with the added uncertainty of looming elections in the UK and US, it will be interesting to see what impact this has on sector confidence beyond the first quarter.’

The Manufacturing Purchasing Managers Index (PMI) for December fell to 46.2, down 1 point on November’s 47.2, meaning that confidence levels had not exceeded 50.0 for 17 months in a row.

Manufacturing production declined for the tenth successive month in December, as downturns in the consumer and intermediate goods sub-industries more than offset expansion in the investment goods category.

Business optimism dipped to a 12-month low in December, reflecting a faltering economy, client closures and high interest rates. However, companies still expect production to rise (on average) over the coming 12 months due mainly to sales drives and new product launches.

Rob Dobson, director at S&P Global Market Intelligence said: ‘UK manufacturing output contracted at an increased rate at the end of 2023. The demand backdrop also remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU.’

However, Jenny Etherton, director at PwC, was more upbeat. She said: ‘December's PMI shows a surge in growth with a notable increase in business activity and incoming new work - the strongest in six months.

‘This signals encouraging signs of business optimism with the potential of a turnaround in client confidence as new order volumes continued to grow.

‘Services prices also increased to protect margins, mainly driven by pressure on wages. Despite anecdotal evidence of this leading to hiring freezes and some redundancies, the good news is that firms are now able to absorb excess capacity with no detrimental effect on work backlogs.’