Business confidence in the UK is the lowest for 20 years, according to the latest BDO Optimism Index, which has been running since 1992.

The firm's Business Trends report, which includes the Optimism index - that predicts the performance of the UK economy in the two quarters following a reports release - suggests the contraction experienced consecutively for the last six months will continue into early next year.

The Index fell to 89.1 in August from 93.1 in July, now at its lowest since BDO first launched it two decades ago and crucially is well below the 95 mark that would indicate a return to growth.

Observing the 'continuing sluggish economic environment', Peter Hemington, partner, BDO, said: 'The government's efforts to cut current spending may not be working out quite as planned, though we believe that the strategy in essence remains correct. But we have long been concerned that the cuts to investment spending were too drastic and that steps to redress this have been taken too slowly. We welcome positive signs that the government now wishes to boost its investment in UK infrastructure.'

Last week the UK government announced a raft of measures to relax planning legislation and stimulate house building as well as encouraging home owners and retailers to begin smaller building projects in an effort to get the economy moving forward.