Optimism among UK businesses slumped to a 20-year low last month, according to a survey by accountancy group BDO.
BDO's Optimism Index, which measures business performance expectations two quarters ahead, fell to 89.1 in August from 93.1 in July, the sixth consecutive month showing a drop, BDO said. Figures above 95 indicate a return to growth.
Meanwhile, BDO's Output Index, which measures short-term turnover expectations, fell to 90.8 in August, its lowest level in 40 months, from 93.9 in July.
The survey comes as Britain's economy, facing headwinds from the euro zone debt crisis and the government's tough austerity plans, struggles to emerge from the recession it slipped back into late last year.
Data on Friday showed British industrial output grew at its fastest pace in 25 years in July, while the National Institute of Economic Research said Britain's economy grew in the three months through August.
The government's efforts to cut current spending may not be working out quite as planned, though we believe that the strategy in essence remains correct, said BDO partner Peter Hemington.
But we have long been concerned that the cuts to investment spending were too drastic and that steps to redress this have been taken too slowly. We welcome positive signs that the government now wishes to boost its investment in UK infrastructure.