UK business confidence has plummeted to a 16-year low reflecting the deepening impact of the credit crunch and rising food and energy prices.

The Business Trends report, where accountants BDO Stoy Hayward pulls together the results all of the main business surveys, reveals a bleak short-term view for UK businesses.

The measure of business confidence over the next quarter declined to 97.7 in June from 98.3 in May, the lowest level since 1992.

This indicates economic growth at an annualised rate of 1.3 per cent over the next quarter, well below the Chancellor Alistair Darling's current forecast for growth between 1.75 per cent and 2.25 per cent in 2008.

Short-term confidence for both small and large companies is equally unstable, with both suffering falls this month. The Index score for small businesses fell from 96.6 in May to 96.0 in June. The Index for large businesses fell from 99.6 in May to 99.0 in June.

The picture is similar for the service sector and the manufacturing sector which both show a decrease in short-term confidence.

The Inflation Index for June is unchanged at 115.6, the second highest level since the report began, indicating that businesses expect prices to rise at a rapid pace over the next quarter - 4.2 per cent.

Peter Hemington, BDO partner, said: ‘We’ve not seen short term business confidence plunge this low since Black Wednesday in 1992, indicating that UK businesses of all shapes and sizes are struggling to see any light at the end of the tunnel.

"With confidence at a 16 year low, an interest rate rise next week aimed at curbing inflation could be crippling for business, and could worsen the effects of the economic slowdown. Our figures suggest that the MPC will be left with little choice next week other than to leave interest rates unchanged."

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