Economy ready to bounce back
The economy looks set to rebound strongly with growth exceeding 3 per cent by April 2006, according to a study from accountancy firm BDO Stoy Hayward, writes Helen Power.
This is in line with Chancellor Gordon Brown’s forecasts which have until now been dismissed as over-optimistic.
Brown has said that GDP will grow by between 2.5 per cent and 3 per cent next year. BDO’s latest Business Trends Report, released today, suggests that the economy will start the year growing at 2.2 per cent, but by the second quarter it will be expanding at more than 3 per cent on an annualised basis. “It’s the most positive news we’ve had for a while,” BDO partner Peter Hemington said.
Other commentators are more pessimistic. The OECD has forecast British growth at 2.4 per cent for 2006, while Ernst & Young’s ITEM club estimated it at just 2.2 per cent.
BDO’s optimism index, which is a survey of surveys of business confidence, has historically been a good indicator of growth.
However, the survey showed a discrepancy between confidence in the service and manufacturing sectors. While the primarily domestic service sector has been boosted by August’s interest rate cut, manufacturing has been held back by global factors, mainly hurricanes Katrina and Rita.
Hemington believes that the Bank of England will keep interest rates on hold until well into next year.