Economic outlook 'is perking up'

IT'S tentative, but signs of economic recovery have been spotted. Order books have reached their highest level since the beginning of the year, according to the latest business trends survey from accountant BDO Stoy Hayward.

It also shows that output has risen for the second month running.

The study, which collates Britain's main business surveys, says that the low cost of borrowing, a competitive pound and increasing confidence are having a positive impact on output.

Optimism is also at its highest level since the first six months of 2002.

But with predicted growth still well below Chancellor Gordon Brown's target of between two% and

2.5%, and inflation rates still low, BDO predicts a cut in interest rates towards the end of the year.

Douglas McWilliams, chief executive of the Centre for Economics and Business Research, which compiled the report, said: 'While firms have higher output expectations, the economic outlook is still precarious, so the next movement in interest rates is likely to be downwards.'

Peter Hemmington, a partner at BDO Stoy Hayward, said: 'This year has been pretty gloomy, but the past two months have looked much perkier for business.

'Bosses are feeling better about the economic environment so they are investing more and getting on with running their businesses.

'But with inflation still low and growth falling short of the Government's target, there is still room for an interest rate cut.'

The BDO output index, which tracks future trends in economic growth, saw a modest improvement in August, edging up 0.1 points to 99.2 - its highest level since January.

This suggests that the economy will grow by 1.7% this year.