Business survey points to 3.4 per cent growth in UK

The UK economy is set to accelerate over the course of the year, according to a report published today that will strengthen the consensus view that the Bank of England will leave interest rates on hold this week.

A survey of optimism among business leaders points to a surge in the annual growth rate in the summer to 3.4 per cent, double last year's 1.7 per cent and well above its long-run trend rate of growth.

The authors of the survey, the accountants BDO Stoy Hayward, say it would result in greater investment and expansion in UK businesses, delivering extra tax revenue to the Treasury and ending a year-long run of rising employment.

Peter Hemington, partner at BDO, said: "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."

All City economists polled last week gave a unanimous verdict that the Bank's monetary policy committee (MPC) would leave the base rate unchanged at 4.5 per cent when it finishes its two-day meeting on Thursday.

"The MPC seem virtually certainly to lave rates unchanged," said Howard Archer, the chief UK economist at Global Insight.

"The chances of a rate cut before the second quarter have receded markedly, given evidence of stronger economic activity and a more robust housing market."

Data on house prices, mortgage approvals and buyers' inquiries at estate agents have all pointed to a sharp upturn in the property market in the wake of the quarter-point rate cut last August.

The first estimate of economic growth in the final quarter of the year showed an acceleration to a 12-month high of 0.6 per cent on the back of a 0.9 per cent surge among services firms that make up three-quarters of the economy.

Philip Shaw, chief UK economist at Investec, said: "On the current strength of these indicators, the hawks on the committee could claim that they are broadly vindicating their outlook for the UK economy and that there is no need to bring rates down."

However, the vote for a rate cut by Stephen Nickell in December and January has put the market on notice for a possible cut later in the year. He was joined by Kate Barker, who said in an interview last week that she had doubts over the Bank's growth forecasts.

Figures published tomorrow by the British Retail Consortium are expected to show that high street sales fell in January. One report said that sales from stores open a year ago fell by 0.6 per cent, fuelling fears that 2006 will be little better than last year, which was described as the worst in modern history.