By David Milliken

LONDON (Reuters) - Concern among large British companies about economic uncertainty has fallen to its lowest since mid-2021 but the improved mood is not yet translating into stronger investment, a Deloitte survey showed on Monday.

Britain's economy entered a shallow recession in the second half of last year although recently published surveys have suggested there will be a modest return to growth in the first quarter of 2024.

"Uncertainties driven by Brexit, the pandemic and inflation that have clouded the business scene for much of the last eight years seem to be clearing," Deloitte chief economist Ian Stewart said.

Profit margins were forecast to rise for the first time in three years and overall optimism increased for a third quarter in a row to levels similar to those just before periods of relatively strong growth in 2010, 2014 and 2021.

Despite this, businesses were more focused on reducing costs and building up cash reserves than longer-term investment.

"Expansionary strategies, such as capital spending and bringing in new products or services, are on the backburner. Given the challenges of recent years it is perhaps unsurprising that ... a degree of caution persists," Stewart said.

Geopolitics remained the biggest worry of large companies, due to fears of increased cyber attacks or higher energy prices and a general fall in demand.

Concern about British productivity and competitiveness rose to second spot - the highest in a decade - displacing disquiet about inflation, energy prices and labour shortages.

Executives expected inflation in a year's time to fall to 2.9%, down from a prediction of 3.5% three months ago, allowing the Bank of England to cut interest rates to 4.25% from 5.25% over the next 12 months

The survey is based on responses between March 12 and March 25 from chief financial officers at 64 large British companies and subsidiaries of multinationals. The British companies have a market capitalisation of 200 billion pounds ($252 billion), equivalent to 8% of the stock market.

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