Business confidence has risen to its highest level since Labour came to power last summer, defying the higher costs that will result from the October budget.

Lloyds Banking Group’s monthly survey of 1,200 UK companies reported a 12-point jump in sentiment in February to 49%, the highest level since August, a month after Labour’s general election victory.

Business confidence in Scotland rose 11 points to an even higher 53%.

Rising confidence was broad-based, with all major sectors of the economy — services, manufacturing and construction — reporting improved optimism.

The survey’s findings will ease pressure on the Labour government, and the Chancellor Rachel Reeves in particular, following a fierce backlash to her £25 billion raid on business in her first budget. Many of the increases in tax and labour costs will come into effect in April.

Lower costs of borrowing and the “resilience” of businesses to cope with higher costs are behind the improvement in sentiment. Companies were feeling more upbeat about the state of the economy, with sentiment rising by 18 points this month to 42% — the biggest monthly jump since the pandemic. Overall, nearly two thirds of firms said they were more optimistic about the economy in February, up from 52% last month.

Hann-Ju Ho, senior economist at Lloyds, said the survey reflected the “resilience of UK businesses” in the face of the rise in national insurance contributions and the national living wage to be introduced on 1 April.

Martyn Kendrick, Scotland director at Bank of Scotland Commercial Banking, said: “It’s encouraging to see to see Scottish business confidence rising again – not only to the highest level since August last year, but also ahead of the UK average.”  

The findings contrast with gloomier surveys, notably from the Chambers of Commerce, and may point to a more buoyant economy than is reflected in other forecasts.

Sentiment may be boosted further on the back of indications that Donald Trump will agree to a UK trade deal and will not impose harsh tariffs on the UK.

However, there have been predictions of closures, particularly in retail and hospitality, as a result of higher labour costs and business rates. A survey from Scottish Engineering today reports a sharp decline in orders.

Despite this, the economy grew by 0.4% in December, beating expectations, while retail sales enjoyed their best month in January since August.

The International Monetary Fund upgraded its projections for UK economic growth this year from 1.5% to 1.6%, based on expectations of a series of interest rate cuts this year.

The Bank of England has cut the base rate three times in the past seven months to 4.5% and some forecasters are predicting the rate to come down to 3.5% this year.