Hopes of an upturn in the economy have been dealt a blow after research showed business confidence is at its lowest level for four years.

According to accountants BDO Stoy Hayward's latest quarterly business trends report, both optimism and output levels fell between February and April.

The research, pulling together findings from a raft of economic surveys, highlights the effects of uncertainty before and during the war in Iraq.

The report's key optimism index fell 0.2 points from 96 in January to 95.8 in April - its lowest level since April 1999.

Worst hit was confidence among small business, which slumped to a five-year low of 97.7 in April from 98.1 in January.

BDO Stoy Hayward believes yesterday's figures for small businesses reflect the effects of uncertainty over demand in the home market during the period.

Meanwhile, the less volatile output index also fell 0.2 points from 98.9 in January to 98.7 in April.

BDO Stoy Hayward said the findings indicated economic growth could slow to "near-zero" levels but said a cut in interest rates this week could give the economy a "shot in the arm".

Partner Peter Hemington said: "Perhaps the clearest message is that optimism needs to come back if UK businesses are to see a post-conflict surge in economic growth."

"If the international economy remains bleak and the Bank of England fails to take decisive action on reducing interest rates, we will see economic growth disappearing by the end of the year."

Taken together, the surveys cover more than 11,000 different respondents from companies employing about five million employees.

Tuesday May 6 2003