Feel-good factor returns to industry and the City

The feel-good factor is flooding back into the economy according to a welter of surveys out today showing a sharp rise in confidence across industry, the City and consumers.

The Confederation of British Industry reports that optimism among financial services firms is at a three-year high following the biggest increase in business since 1989. The survey is backed by a Gallup survey for the investment bank Merrill Lynch showing that UK fund managers are much more bullish about the equity market now than they were a month ago.

Separately, the Finance and Leasing Association predicted that consumer confidence would rise and rise after its latest figures showed a 24 per cent increase in demand for credit, year on year.

The picture of economic optimism was further reinforced by a KPMG survey showing that business is booming among owner-managed companies where profits are up by an average of 18 per cent compared with the previous 12 months.

According to the latest CBI-Coopers and Lybrand financial services survey, optimism is increasing at the fastest rate since March 1993. Building societies report the strongest rise in business confidence followed by banks and life assurers.

Only general insurers, security traders and venture capitalists record a drop in confidence compared with three months ago.

Despite the rise in confidence, employment in financial services fell in the second quarter of the year and bigger job cuts are expected over the next three months. The rise in business volumes has also come at the expense of narrower margins, said CBI economist Sudhir Junankar.

The Merrill Lynch survey, compiled before last Friday's sharp correction on Wall Street, shows that a balance of 20 per cent of fund managers are more bullish than bearish on UK equities with general retailers the most favoured stocks. Last month there were fractionally more bears than bulls.

Martin Hall, director general of the Finance and Leasing Association, said its members expected demand for consumer credit to rise considerably in coming months, bolstered by falling interest rates and taxes. In May, total consumer credit provided by FLA members rose 24 per cent to just over pounds 2bn.

According to KPMG, operating profits among owner-managed businesses are growing most strongly in the west of England, where the increase was 34 per cent, followed by the Midlands. Firms in the South-east reported the fastest growth in turnover. The report attributed the improvement to improved technology, cost control, investment and marketing but also to the return of, if not quite the feel-good then the feel-better factor.