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LONDON, Jan 8 (Reuters) - British firms grew more confident in the last three months of 2012, suggesting the economy avoided contraction and is set for modest growth in the early part of this year, Britain's largest business survey showed on Tuesday.
The survey of more than 7,000 firms by the British Chambers of Commerce contrasts sharply with the downbeat message last week from a set of closely watched polls of purchasing managers. They suggested Britain is slipping back into recession.
The association, which predicts that the economy will grow by 1 percent in 2013, found that firms from both the manufacturing and services sector saw an improvement across most indicators in last three months of 2012 compared with the period before.
"Fears that the economy has returned to negative growth in Q4 2012 are not supported by our survey," the association said.
For example, service sector firms are the most upbeat about domestic sales since the second quarter of 2010, and the export sales balance equals the highest level seen since late 2007.
Manufacturers' confidence about profitability is the highest in two years, and service sector morale about profits is the highest since late 2007.
Employment expectations for the next three months improved in the last quarter of 2012 for both services and manufacturing, although manufacturing saw a larger increase.
Nonetheless, in many areas business sentiment remained weak by historic standards, the quarterly survey showed, and the Chambers' forecast of 1 percent growth in 2013 is no better than that seen by most economists or in government forecasts.
The service export balances were "satisfactory" at the end of 2012, the Chambers said, but the manufacturing export balances are still inadequate.
Domestic balances for both manufacturing and services are lower than their long-term averages and well below their pre-recession levels in 2007.
Warning of a prolonged period of below-trend growth, the Chambers called on the government to implement growth boosting policy while sticking to its deficit reduction objectives.
"The UK economy will continue to face major obstacles as we head into 2013, and every effort must be made to kick-start growth," Chambers Director General John Longworth said in a statement.
The report comes out as some tentative signs emerge of a benefit from policies designed to increase the availability of finance in the economy, such as the Funding for Lending Scheme.
The Chambers also reiterated doubts over the official GDP figures from the Office for National Statistics, saying that its survey showed stronger GDP growth in the first half of 2012, and a weaker rebound in Q3 than the ONS data does.