Business confidence fell to 36% in September - down from an 18-month high of 41% in August - as companies saw a decline in both economic optimism and trading prospects, shows new research from Lloyds bank.
The bank's business barometer, which surveys 1,200 firms monthly, provides early signals about UK economic trends.
Half of businesses (52%) anticipated stronger activity in the next 12 months (compared with 57% in August), while the number of firms expecting weaker outcomes remained unchanged at 11%, resulting in confidence falling from 46% to 41%.
However, while confidence has reduced, it still remains higher than in the first three months of 2023.
Optimism about the wider economy also fell, with 51% of firms reporting greater optimism, while 21% were less upbeat.
September's fall in business confidence was largely driven by the retail and services sectors. Dragged down by trading prospects, retail confidence fell from 44% to 32%, while confidence in both services and construction dropped by 8 points to 36%.
Manufacturing was stronger, however, with confidence rising to a three-month high of 36%.
Overall, business confidence levels remain well above the 22-year average of 28%, reflecting an upward trend during 2023.
Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said:
"While the gains in business confidence we saw in August have not been maintained, it's important to see the wider trend clearly reflected in the data which paints a very different picture to this time 12 months ago, when the economy was in significant difficulties.
"Although the economic environment remains uncertain with inflation and interest rate pressures playing their part, the recent decision by the Bank of England to leave interest rates unchanged is likely to help businesses feel more upbeat about the future, which may underpin confidence in the last three months of the year."
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