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Last Updated: Monday, 6 February 2006, 07:19 GMT
UK economy 'starting to improve'
Shoppers on Regent Street
Steady consumer spending is set to underpin UK growth
The UK economy is set to pick up pace this year, driving greater corporate investment and growth, a report says.

Economic growth will hit 2.2% in the second quarter of 2006, and 3.4% in the third, according to accountants and business advisers BDO Stoy Hayward.

As a result, UK interest rates should stay unchanged this year, unless world growth and demand slows, BDO said.

UK growth has been under pressure as record oil prices and higher borrowing costs have put a dampener on spending.

'A better year'

In December, the UK halved its growth forecasts for 2005 to 1.75% and there had been concerns that the slowdown may continue this year.

However, a number of recent reports have pointed to an improving economic environment.

Businesses may well feel confident enough in the next few months to dust off investment plans and increase hiring
Peter Hemington, BDO Stoy Hayward

"2006 should be a better year for the UK economy than 2005, with healthier consumer demand feeding through to most sectors," said Peter Hemington, a partner at BDO.

The company prepares the report with the Centre for Economics and Business Research (CEBR).

"Stronger domestic and European demand will ease the pressure on many UK businesses this year," said Douglas McWilliams of the CEBR.

"Inflation looks set to come under control, but a possible slowdown in US-led international demand may put pressure on the Bank of England to consider a rate cut towards the end of the year," he explained.

BDO said that its index of manufacturing confidence had increased to 98.6 in January from 97.1 in October, as many companies are now seeing fuller order books.

Mr Hemington said that risks still remain, especially in the financial and energy markets.

"However, we think that businesses may well feel confident enough in the next few months to dust off investment plans and increase hiring," he said.

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