Shop owners will recover in 2006 from last year's economic slowdown as inflationary pressures ease and consumers once again start opening their wallets, a new report suggests.
While spending growth is unlikely to reach its highs of 2003, stability in the oil and housing markets are likely to reduce inflationary pressure in the new year, according to the latest business trends report from BDO Stoy Hayward.
BDO based its prediction on figures from its inflation index showing a decrease from 102.0 in November to 101.3 in December, which suggests inflationary pressures will continue to ease, it said.
Its optimism index also rebounded, a leading indicator of longer term growth, two quarters ahead.
The report predicts that stability should help bolster consumer optimism and drive shoppers back onto the high streets, giving retailers better results at the tills.
The report warns, however, that businesses still face a difficult start to the year and growth is expected to remain slow throughout the first quarter.
As a result, BDO predicts the Bank of England will keep the national interest rate on hold at 4.5% over the next few months as it waits for economic growth to improve.
"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," said Chris Grove, partner at BDO Stoy Hayward.
The Bank of England's rate-setting Monetary Policy Committee (MPC) meets this week.
