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UK Business Confidence Plunges In May

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Business confidence in the wider economy plunged in May as companies were shaken by developments in the crisis-hit eurozone, a survey showed on Wednesday.

The Lloyds Bank Wholesale Banking and Markets Business Barometer fell to minus 21% from 26% last month, meaning most respondents are negative on the view of the economy.

The eurozone crisis continued to escalate throughout May as fears grew over the health of the Spanish economy and the possibility of Greece exiting the euro.

business confidence

The deepening troubles in the eurozone have also hit confidence on stock markets.

Trevor Williams, chief economist at Lloyds Bank Wholesale Banking & Markets, said: "The renewed concern around the eurozone is clearly having an impact on businesses' sentiment towards prospects for the UK economy and, to a lesser extent, to their own prospects."

Companies also became less confident about their own prospects, although the decline was not as severe as the sentiment towards the broader economic outlook.

Businesses' confidence in relation to their own prospects currently stands at 35%, down eight points on April's 43%, Lloyds said, which still remains higher than during the worst of the financial crisis in 2008/09.

The survey data suggest an underlying 0.2% growth in gross domestic product (GDP) between April and June, Lloyds said, but only once the impact of the Diamond Jubilee is taken into account, which is likely to have reduced growth by 0.5 percentage points.

The most notable declines in confidence in May came in the North and Midlands and in the retail and distribution sector.

The survey comes after accountants Ernst & Young said the recovery was being undermined by "zombie" companies. They claimed "financially undead" companies were holding back the economy and should be allowed to fail.

The deepening troubles in the eurozone have also hit confidence on stock markets.

Debt-ridden Greece, which is in its fifth year of recession, faces a crucial election later this month, which has been branded a referendum on whether it will stay in the eurozone and stomach more painful austerity measures.

Meanwhile, there are fears over the health of Spain's banking sector, after its fourth biggest lender, Bankia, said it needed a 19 billion euro (£15.2 billion) bail-out. In the UK, banking stocks have been among the worst hit.

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