Warnings that Britain is on the brink of a triple-dip recession have been challenged by business leaders after a survey showed firms have become more optimistic over the economic outlook.
The British Chambers of Commerce's (BCC) quarterly economic survey, which covers 7,662 businesses, also points to stronger output from the manufacturing and service sectors in the final quarter of 2012.
This is more optimistic than City expectations after recent surveys suggested that the economy could contract in the fourth quarter, with a further decline in the current period confirming a return to recession.
BCC director-general John Longworth said: "Our survey results show that the economy is making progress, despite the numerous challenges it has faced."
The BCC expects a modest recovery in GDP during this year and in 2014 but said that the Government needs to take more steps to boost growth.
It said recent efforts to improve access to finance through a business bank must be implemented at "scale and with clear timetables", while more forceful measures are needed to unlock private funding in a bid to renew infrastructure. Mr Longworth also said the "culture of Nimbyism" that prevented many business projects getting off the ground should be defeated.
BCC chief economist David Kern said fears the economy had contracted in the fourth quarter were not supported by the survey, which showed business confidence rose significantly in this period.
He said: "We expect modest GDP recovery in 2013 and 2014, but it is clear that UK growth remains inadequate and must be boosted further. The economic environment will remain challenging, both globally and in the UK, with a prolonged period of below-trend growth."
The survey revealed manufacturing and services sector balances had improved, but were still well below pre-recession levels in 2007. It also revealed the number of firms planning to increase their prices had risen, with inflation remaining a major concern for both manufacturing and services businesses.
The BCC, which represents around 100,000 businesses, reported improvements in most of its measures, including the number of firms planning to invest more in machinery and training, but it warned many of the figures were still weak by historical standards.
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