Friday 06 January 2017 11:03 am

UK businesses and consumers see rosy economic prospects peak at the end of 2016, as confidence in Europe rises

UK business confidence in the economy’s prospects increased to a 2016 high in December as Eurozone companies also saw a strong improvement in trading conditions, according to the European Commission.

The buoyant services sector drove UK economic sentiment to an increase of 1.3 per cent, reflecting recent news of a rise in the services purchasing managers’ index (PMI), indicating an expanding sector.

Meanwhile, improved sentiment in the retail trade, industry and among consumers in the Eurozone boosted perceptions of the bloc’s broad economic prospects, despite the significant political risk events hanging over the region.

European consumer confidence rose by 1.1 per cent, thanks in part to improved employment prospects, while morale in the retail trade increased by 1.7 per cent in response to the better current trading conditions.

The Italian constitutional referendum and the subsequent resignation of Matteo Renzi as Prime Minister had little effect, with economic sentiment remaining stable in Italy. France, the Netherlands, and Germany all saw strong increases, despite elections in 2017 in which far-right, protectionist politicians are expected to mount a serious threat.

However, it was Swedish economic sentiment that led Europe, with a 3.7 per cent increase in confidence in prospects for the economy.

The European Central Bank watches measures of confidence as it attempts to gauge the impact of its monetary policy. Last month its Governing Council committed the bank to an extension – albeit at a slower pace – of its quantitative easing programme.

The UK’s increase in economic sentiment “remains broadly in line with the EU average, suggesting that the risk of a hard Brexit is not weighing heavily on business sentiment currently,” said Samel Tombs, chief UK economist at Pantheon Macroeconomics.