The research, which tracks UK business confidence on a monthly basis, found that overall confidence fell by 11 points to 44% in April, a decline driven by a 17-point fall in economic optimism to 33% – the largest drop recorded since April 2020.

The decline in economic optimism was driven by rising inflation, global uncertainty and higher interest rates. However, the overall business confidence level remains above the long-term average of 30%, according to the analysis.

In terms of businesses’ outlooks on their own trading prospects, 63% of participants expected stronger output over the year ahead, down from 66% the previous month, while 9% (up from 6%) expected weaker activity. The resulting net balance declined by six points to 54%.

The construction sector saw the biggest decline in confidence, dropping 27 points to 29%, while retail business confidence fell by 14 points to 45%.

There were other decreases for the manufacturing sector (down six points to 47%) and services sectors (down eight points to 45%).

Amanda Murphy, chief executive, Lloyds Business and Commercial Banking, said: “Businesses told us their confidence fell as inflation pressures re-emerged, global uncertainty persisted and costs remained elevated. While sentiment declined, it remained above the long-term average, with nearly two-thirds expecting stronger output in the coming year.

“UK businesses are resilient and adept at deploying strategies to defend growth in uncertain conditions. Over the past month, we’ve seen them opt for flexibility wherever possible. They’re building contingency into their short and medium-term plans, rather than expecting a rapid return to normal. Protecting margins has become more important. That means tougher cost scrutiny and a greater focus on balancing growth with profitability.

“In this environment, as with other recent market disruptions, we continue to observe that sustainable success comes from discipline, resilience and clarity about what really drives long term value.”

Ipsos conducted the survey between 1^st and 16^th April. The sample size covers the online responses of a sample of 1,200 UK companies monthly from all industry sectors, regions and firm sizes, including those with annual turnover below £1m. The results are re-weighted to match proportions by sector, region and size of the total business population, as published by the Department for Business, Energy and Industrial Strategy and the Office for National Statistics. Net balances are calculated by deducting the percentage of negative responses from the percentage of positive responses.