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The growth of the UK economy is set to accelerate in 2006, according to
accountants and business advisers BDO Stoy Hayward.
The latest Business Trends Report reveals that the economy is set to grow by 2.2
per cent in the second quarter of 2006, followed by a predicted growth of up to
3.4 per cent in the third quarter of 2006.
This new-found confidence in the economy is likely to result in greater
investment and expansion in UK businesses, fuelling bullish boardroom activity.
Such levels of growth would increase Chancellor Gordon Brown's tax revenues and
could bring to an end a period of more than a year of rising unemployment,
especially if companies opt to lift the freezes on recruitment which many have
imposed over the past year.
Despite expectations of a downward trend in interest rates, BDO Stoy Hayward
predicts that the Bank of England's Monetary Policy Committee (MPC) will keep
interest rates on hold for most of 2006. However, a cut may be on the cards
towards the end of the year if the recent US interest rate rises succeed in
cooling world consumer and business demand.
It is interesting to note that the manufacturing sector is still lagging behind
other sectors, with the manufacturing output index dropping by 0.9 points from
97.5 to 96.6. This is likely to be due to weaknesses in the UK industrial base
and an uncompetitive pound making it hard for some exporters to compete against
European and American rivals.
In contrast, the optimism index for the manufacturing industry has jumped by 1.5
points from 97.1 in October 2005 to 98.6 in January 2006. This spurt probably
reflects growing international and domestic demand filtering through to this
sector and contributes to the increasingly positive outlook for this spring.
It is clear that UK businesses can expect firmer demand conditions than those
experienced throughout 2005. This is also reflected in the indices for the
services sector.
Peter Hemington, partner at BDO Stoy Hayward, commented: "Taking the output and
optimism indices together, the message is that 2006 should be a better year for
the UK economy than 2005, with healthier consumer demand feeding through to most
sectors.
"Risks remain, notably from the financial markets and from energy prices.
However, we think that businesses may well feel confident enough in the next few
months to dust off investment plans and increase hiring."
Douglas McWilliams, Chief Executive of the centre for economics and business
research, added: "Stronger domestic and European demand will ease the pressure
on many UK businesses this year. Inflation looks set to come under control, but
a possible slow down in US led international demand may put pressure on the MPC
to consider a rate cut towards the end of the year."
Source:
RedAlert
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