Business confidence in the British economy has leaped to its highest level for more than three years following the Conservatives’ election win, according to a survey of company directors.

For the first time since spring 2018, firms have become optimistic about the economic outlook, with a key confidence measure swinging into positive territory and hitting 21% in December, up from -18% in November.

That is the highest figure since the 2016 EU referendum, according to the Institute of Directors (IoD), which polled members in the days following the election. It added that Boris Johnson’s new majority government meant company directors, whatever their personal views, now had a framework around which they could put in place plans to invest, hire staff and expand.

The IoD’s main confidence measure – which is the net balance of those firms that are optimistic minus those that are pessimistic – had been negative for more than 18 months.

But the organisation warned that the uncertainty surrounding the UK’s long-term relationship with Europe remained a cause for concern, adding: “Our members’ confidence has proven sensitive to Brexit developments over the past few years, and this is likely to continue during negotiations in the year ahead.”

Directors at larger businesses tended to be more optimistic about prospects for the economy over the next 12 months. The data showed that company directors have also become more upbeat about their own firm’s prospects, with this figure increasing to 46% from 26% a month earlier.

This pick-up in confidence was accompanied by a “significant” increase in firms’ investment intentions for 2020. A net balance of 18% expected their investment levels to increase, though the bulk of those quizzed also expected to be hit with higher costs over the next 12 months. The directors’ body said this indicated that the new government “has its work cut out” to support the labour market and cut firms’ mounting bills.

The current state of the economy was named the top challenge, followed by continued uncertainty around the UK’s future relationship with the EU.

Tej Parikh, the chief economist at the IoD, said: “Britain’s directors will be entering 2020 with a little more festive cheer than might have been expected only a few weeks ago.”

He added that the government’s agenda as outlined so far included some welcome proposals, such as plans to increase and broaden research and development tax credits.

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He also highlighted proposals outlined in the Queen’s speech on 19 December to reform business rates. Some firms should have their business rates halved with the government committing to increase the so-called business rate “retail discount” from one-third to 50%, extending it to cinemas and music venues, and introducing an additional discount for pubs.

The government also claimed in the Queen’s speech that the reforms and reliefs announced since 2016 would reduce the burden of business rates by more than £13bn over the next five years.

The IoD findings are based on a poll of 952 company directors carried out between 13 December and 20 December.