Source: The Telegraph
Britain’s rapid growth rate will become “ingrained” and more balanced, the European Commission said on Monday, as two separate reports suggested the strong rate of expansion was likely to continue.
The EC now expects the UK economy to grow by 2.7pc in 2014, compared with a forecast of 2.5pc three months ago. It also upgraded its forecast for 2015 growth to 2.5pc, from a previous estimate of 2.4pc. “Growth is expected to become firmly established… and its composition is expected to broaden,” the EC said in its spring forecast on Monday.
The upgrade means Britain has cemented its position as one of the fastest growing economies in Europe – above Germany, which the Commission believes will grow by 1.8pc this year, and France, which is predicted to grow by just 1pc. Only Sweden – which is forecast to grow by 2.8pc this year – is predicted to expand at a faster pace among the advanced economies.
The strong rate of expansion has put Britain on course to be the fastest growing country in the G7 this year, according to the International Monetary Fund (IMF). PwC, the accountancy firm, also lifted its forecasts for the UK economy yesterday. It now believes Britain will expand by 2.8pc this year, up from a forecast of 2.6pc last month. This puts its growth rate above America, Germany, Japan and Australia.
The EC’s forecasts came as a survey by the Institute of Chartered Accountants in England and Wales (ICAEW) showed UK business confidence for the second quarter touched a record high, with respondents expecting almost half a million new private sector jobs to be created in the next 12 months.
“The recovery is becoming more solid,” said Michael Izza, chief executive of ICAEW. “Employment growth is accelerating and salary growth is now keeping pace with inflation.”
The balance of business confidence in the second quarter rose to 37.3pc, according to the ICAEW/Grant Thornton business confidence monitor, slightly up from 37.2pc in the first three months of the year.
Respondents expect 450,000 private sector jobs to be created over the next year, with small and medium enterprises leading the expansion.
However, the ICAEW warned that skills shortages in some sectors were becoming a “major issue”. it said shortages were most marked in the construction sector, which powers around 6pc of the economy.
“There is a real concern amongst business owners that they will not be able to recruit employees with the right skills,” said Mr Izza. “This is a real threat to the sustainability of the recovery.”
While a strong rise in business investment this year is expected to steer Britain towards a more balanced recovery, the EC’s forecasts yesterday highlighted that the economy remained reliant on consumer spending to drive growth. “Private consumption is forecast to remain a key determinant of growth,” the EC said on Monday.
It believes households will continue to dip into their savings this year and next in order to fund purchases. Britain’s saving ratio is expected to remain at 5.1pc this year – revised down from a forecast of 6.1pc just three months ago.
“Reluctance by households to further reduce savings to maintain consumption growth is a downside risk to the forecast,” the EC said.
It also believes Britain’s current account deficit will be 3.8pc of gross domestic product this year. The deficit, which measures trade, is expected to remain the widest in Europe over the next two years.