By Claire West

Latest Lloyds TSB Business Barometer 'monthly snapshot' shows:

* Businesses are becoming more confident about the economy

* Business expectations for their own performance remains muted, showing firms remain cautious about investment spending

* The findings suggest that growth will slow in the second half of the year but that the chance of a double-dip recession is beginning to recede

British businesses are caught in a 'confidence conundrum' in which their hopes for the economic outlook are becoming brighter, while expectations for their own trading prospects are failing to gather momentum. The findings in the latest Lloyds TSB Corporate Markets Business Barometer suggests that firms are still holding back from investing - and are likely to do so until faith in their own prospects is restored.

Given the Barometer's record as a leading indicator of GDP, the latest survey suggests that economic growth will slow in the second half of the year and then stabilise at a low but positive levels.

Trevor Williams, chief economist, Lloyds TSB Corporate Markets, said: "Confidence has rebounded in the past 18 months, but businesses are still cautious about their own prospects. This means investment spending is likely to remain subdued and that overall GDP is likely to slow in the second half of the year - though we should avoid a double dip recession."

The monthly snapshot of business sentiment shows that almost half of British small firms (47 per cent) say they are now more optimistic about the economy than they were three months ago, while a quarter (23 per cent) say they are less hopeful. This results in an overall 'balance' of 24 per cent, which is seven points higher than the levels reached in the previous month - and follows three months of consecutive falls.

However, companies views about their own prospects are improving much more slowly. More than two fifths of businesses (44 per cent) say they expect an increase in trade over the coming 12 months, while just 15 per cent believe business will slow down. The resulting balance of 29 per cent in August is just two percent higher than in July and remains below the long run average for the survey of 41 per cent.

Across the sectors, industrial businesses were the most confident about own company prospects (37 per cent), followed by distribution (28 per cent) and services (25 per cent). From a regional perspective, firms in the Midlands were the most confident about own company prospects (36 per cent), followed by the South (31 per cent) and the North (20 per cent).