Economy recovery 'more likely' says report

The year ahead looks likely to be a brighter one for the UK economy with a retail recovery looking more likely and consumer spending set to be higher than last year.

However, businesses face a difficult start to the year with growth likely to remain slow in the first quarter.

According to the latest Business Trends Report from accountancy firm BDO Stoy Hayward, cooling oil prices and stabilising house prices will ease inflationary pressures in 2006, which will in turn improve consumer optimism and spending.

Although consumer spending growth is unlikely to reach the 2003 highs – which were largely fuelled by the house price boom – improved growth in the retail industry is likely, with spending set to exceed 2005 levels this year.

Despite increased expectations of a downward trend in interest rates in 2006, brought on by falling inflation and improvements in economic growth, BDO Stoy Hayward predicts that the Bank of England’s Monetary Policy Committee will keep interest rates on hold for the next few months as it waits for GDP growth to improve further.

Chris Grove, Partner at BDO, said: “A strong combination of stabilising house prices and cooling oil prices suggest that consumer confidence will improve in 2006, paving the way for a retail recovery. Although we don’t expect the MPC to cut rates this month, it is likely that we will see a cut to 4.25 per cent by the end of the year which will put more money into people’s pockets and please UK businesses.”

The BDO Business Trends Report is prepared for the Centre for Economics and Business Research.

The Government's growth forecast for the UK was recently halved and there are concerns that any pick up in the economy may be delayed as market sectors recover at different rates.

(SP/KMcA)