People carry shopping bags as they walk past Christmas themed shop displays on Regent Street in London
People carry shopping bags as they walk past Christmas themed shop displays on Regent Street in London, December 4, 2022. Reuters

Most British businesses expect their sales to rise over the coming year - an improvement from late 2022 - despite seeing no sales growth over the past three months, the British Chambers of Commerce said on Tuesday.

The BCC said its survey of 5,200 mostly small and medium-sized businesses showed gloom was concentrated in the retail and hospitality sectors.

After a slump in business confidence in the second half of 2022, business sentiment improved as political turmoil and inflationary pressures showed some signs of easing, David Bharier, the BCC's head of research, said.

"However, this comes from a very weak base, and while confidence has improved, this is yet to translate into an overall improvement of business conditions," he added.

Britain's economy grew just 0.1% in the final quarter of 2022, when former Prime Minister Liz Truss's short-lived government created financial market turmoil, and inflation hit a 41-year high. It shrank by 0.1% in the third quarter, partly due to business closures to mark Queen Elizabeth's funeral.

The BCC said 52% of firms surveyed between Feb. 13 and March 9 expected sales to rise over the coming year, up from a low of 44% in the third quarter of 2022.

However, over the past three months only 34% had seen sales rise, compared with 24% who suffered a drop in sales and 41% whose turnover stagnated.

Falls in sales were more common for shops and hospitality firms, where 38% and 32% respectively reported a drop.

British inflation remains above 10% but the Bank of England has forecast it will drop below 4% by the end of this year as energy costs fall.

The BCC said businesses' concerns about inflation had fallen for the first time in two years, and the proportion planning to raise prices had dropped to 55% from 60%.

Even so, energy bills will remain high for households and businesses, while the effect of past BoE interest rate rises will become more widely felt as homeowners refinance short-term fixed-rate mortgages.

Deutsche Bank on Monday revised up its forecast for Britain's economy this year, predicting zero growth rather than its previous prediction of a 0.2% contraction in output.