Recovery well under way, say bosses: Survey of 2,000 managing directors shows optimism at four-year high

BUSINESS optimism has surged to its highest in nearly four years, showing that economic recovery is 'well and truly under way', according to a new survey released last night.

But companies are more confident about sales than profits, which remain under pressure from rapidly rising raw materials costs.

The survey by Dun & Bradstreet followed a strong day for the pound. Sterling rose 0.6 points against a basket of other currencies to 80.7 per cent of its 1985 value - its highest level since before base rates were last cut in January. After a strong opening, the pound ended 3.3 cents higher than Thursday's close at dollars 1.5595 and 1.24 pfennigs higher at DM2.4632.

The latest survey of nearly 2,000 managing directors showed a record jump in expected sales over the past three months. A net 42 per cent forecast higher sales in the second quarter than a year earlier.

But only half as many companies expect profits to be higher in the second quarter than a year ago, reflecting the difficulty of passing on cost increases to customers as higher prices.

The Central Statistical Office said yesterday that industry's fuel and raw material costs rose 8.3 per cent in the year to March, the biggest annual increase for eight years. Input prices have risen 8 per cent since Black Wednesday as the falling pound has made imports more expensive.

Higher input costs have yet to make much impact on the prices manufacturers charge. Factory gate inflation stayed at 3.7 per cent in March but would have risen had the excise duty increases in the Budget not been smaller than a year ago.

Excluding volatile food, drink and tobacco prices, factory gate inflation was unchanged at 2.6 per cent. Food prices have been boosted by the fall in the 'green pound' since Black Wednesday, which means that British producers are guaranteed higher sterling prices for foodstuffs covered by the EC Common Agricultural Policy.

Mark Cliffe, of Nomura Research, said the rise in input prices was a cause for concern. He predicted that Friday's retail prices figures would show headline inflation rising from 1.8 to 1.9 per cent in March, with the underlying rate topping the Chancellor's 4 per cent target by the year-end.

Inflationary pressures are being restrained by falling labour costs, although this could be imperilled if unemployment stopped rising more quickly than expected. The survey showed a sharp improvement in expected job prospects, with a net 4 per cent of managing directors expecting to employ more people in the second quarter than a year earlier.

Employment optimism is particularly strong in London, the South- east and the East, where services are expected to provide many new jobs early in the recovery.

Despite this optimism, Dun & Bradstreet found that a two-to-one majority of managing directors believed the Government had not yet established the conditions to allow a sustained economic recovery.

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