Business optimism has slumped to its lowest level in more than three years, according to a survey today.

The Institute of Directors said its poll of 500 company directors showed weak order books and slipping performance.

The balance of companies more optimistic about prospects was just ten per cent in December, compared with 28 per cent last summer.

The survey straddled the September 11 terrorist attacks in New York so did not fully account for the damage caused to business optimism in the UK, said the IoD.

Inflationary pressures remained "very benign", according to the survey covering the last quarter of 2001.

Average pay settlements were 4.6 per cent, marginally higher than last September but still "well contained".

Ruth Lea, head of policy at the IoD, said: "We remain reasonably confident that the UK economy as a whole will avoid a full-blown recession despite the pain experienced in several parts of the private sector, especially manufacturing."