UK companies are hopeful about the state of the global economy, but remain reluctant to invest heavily in major acquisitions, according to research by Ernst & Young.

E&Y's eighth bi-annual Capital confidence barometer, based on a survey of 1600 senior executives, found 93% of UK companies now view the global economy as either stable or improving.

More than half (58%) say the global economy is improving outright, three times the 18% recorded in October 2012. Getting on for two thirds (62%) cite growth as a priority, compared with 36% in October last year.

There is a strong consensus among UK corporates that M&A volumes will increase with 75% expecting global deal volumes to rise over the next 12 months. However, only 27% of major companies expect to make acquisitions over the course of the year, with organic growth measures (49%) the major strategic preference for executives.

Jon Hughes, head of E&Y's transaction advisory services practice, said: 'What we are seeing is a "confidence paradox" with planned activity contradicting expectations'.

E&Y's survey findings suggest the gap between buyer and seller valuation expectations is closing, with most respondents (82%) saying the gap is 20% or less, compared with 73% in October 2012.

However, expectations for increased valuations are now at their highest level since the survey began, with 44% of companies expecting price/valuations to rise in the next year, up from 31% in October 2012. Just 6% of companies expect valuations to decline, compared with 21% six months ago, suggesting the market has stabilised.

Hughes said: 'Economic confidence, credit conditions and valuations all signal that now could be the right time for corporates to make that strategic acquisition. History shows that first movers in any economic cycle can create differential value and position themselves for sustained market leadership.'