Nearly two-thirds of small to medium sized businesses in the UK will increase IT spending by an average of 5.3 per cent in 2008.

AMR Research said that the increase is down to "outside-in pressures", such as meeting customer demand and handling increased competition, and "internal pressures" such as increasing efficiency and decreasing costs.

SMBs are focusing almost half of their budgets on applications that help them run their businesses, according to the report.

But applications that support innovation and growth are increasingly important, and are taking up the rest of the annual budget.

"Traditional thinking and spending patterns have led us to assume that SMBs prefer to maintain current levels of IT investment and focus primarily on running the business," said Simon Jacobson, senior research analyst at AMR Research.

"But this year's respondents indicate an even split between running the business and the desire to innovate and grow.

"This is intriguing for a market segment that has traditionally been characterised as 'strapped for IT resources' and focused largely on sustaining current market position."

The research suggests that the most strategic software investments for 2008 will be in customer management applications which reflect the increased customer demand faced by many SMBs.

But such companies are also planning to focus strategic investments in business intelligence and performance management applications in 2010.