UK business confidence is increasing despite higher interest rates, a survey by accountancy firm KPMG has found.
Small- and medium-sized business are vital drivers of the economy
KPMG said that 64% of the small and medium-sized companies it polled were optimistic about the outlook for businesses over the next 12 months.
According to KPMG that is the highest level of optimism since 2004.
The Bank of England has been steadily raising interest rates to 5.5% to slow inflation and there were fears it would have hurt consumer demand and profit.
Even though the majority of firms are upbeat about the future, KPMG said that two-thirds of the businesses surveyed would prefer interest rates to remain where they are.
KPMG questioned businesses with an annual turnover of between £5m and £500m.
"There is an obvious concern among those questioned that interest rates are going to continue to increase," said Mel Egglenton, KPMG's head of UK middle market.
Mr Egglenton said that it was important to remember the survey dealt with business people not economists, and as result was based on the strength of order books not macro-economic analysis.
He added that it was "hard to put a finger on" why companies were feeling so much more optimistic than in earlier surveys.
"It wasn't that long ago that small- to medium-sized businesses were struggling with rising energy costs," he said.
"Many had to look hard at ways to improve their efficiency, and perhaps as a result they are now left with businesses that are more robust than they would have been otherwise.
"It appears that those who felt the pinch over the last year or two have now steadied the ship and are looking forward to the next 12 months with a renewed sense of optimism," he concluded.
The survey found that more than three quarters of those questioned were upbeat about the outlook for their own businesses, the highest figure since 2003, KPMG said.
At the same time, a similar number were also optimistic about their prospects overseas, and were feeling "competitive' or "extremely competitive" within Europe.
KPMG found this feel-good factor extended to the UK economy as a whole, with 58% of those polled saying they felt it was on an "upward curve".
"To see these businesses in confident mood and with healthy order books surely bodes well for the future," Mr Egglenton said.