Confidence amongst West Midlands businesses may have been dented by the tougher conditions of recent months but firms are taking a balanced view of 2008, according to the Business in Britain survey from Lloyds TSB Commercial.

The report, based on the responses of more than 1,800 firms across the UK, shows that the balance of West Midlands firms expecting improved, rather than worsening conditions over the next six months is 15 per cent.

This represents fewer firms who are hopeful of a strong start to the year for orders, sales and profits over the coming six months against 34 per cent in July's survey, it claims.

The less positive outlook comes after six months of slower orders, sales and profits. The number of firms in the region which reported higher, rather than lower sales, during the second half of 2007, fell to 23 per cent, from 32 per cent in the last survey, while the balance of companies which saw higher order book levels dropped from 26 per cent to 17 per cent.

As a result, expectations are that West Midlands profits will be maintained rather than grow as strongly as recently.

A balance of just one per cent of local companies expect higher profits in the first half of 2008 - down from 18 per cent in July 2007.

The number of firms expecting higher order book levels also fell, dropping to 19 per cent, from 38 per cent in the last survey, while those anticipating sales growth is down from 45 per cent to 24 per cent.

Weaker profit forecasts have also taken an inevitable, albeit short-term, toll on businesses investment and recruitment plans. The balance of West Midlands firms expecting to increase, rather than decrease capital spending, dropped from eight per cent to minus nine per cent, while the number of businesses expecting to recruit more staff dropped from 12 per cent to three per cent.

There is little evidence that businesses in the region are feeling the pinch on their finances, with only a slight increase - from 20 to 22 per cent - in the number of firms reporting strains on cash flow. And this is still far below the peak reached during the 1990s recession when 56 per cent of all UK firms reported problems with cash flow.

Despite the tougher times ahead, firms are still optimistic about their scope for increasing prices, in the hope of countering falling sales.

The balance of firms expecting to be able to raise prices has reached 33 per cent - up from 17 per cent in the last survey. This could have implications for the Bank of England, which has to consider inflationary pressures when making interest rate decisions over coming months.

Andy Youngman, area director, Lloyds TSB Commercial in Birmingham, said: "There's no doubt 2008 will prove more of a challenge for many West Midlands firms, but it's a ride most will be able to endure.

"It's clear that investment spending will be capped, as businesses tighten their financial belts, but British firms are well versed in the art of cash management and financial planning and these are skills that should help them weather the storm throughout 2008 and beyond."

Britain and the world will continue to enjoy economic growth, Chancellor Alistair Darling said yesterday, despite the turmoil on financial markets and fears of a US recession.

"We are going through a troubled period, there's a lot of turbulence around," he admitted. "But I am confident we will get through these difficulties and will continue to see growth, not just in our economy, but the world economy too."