The UK economy is set to grow by 3.1% in 2014 and a further 2.2% in 2015, the Centre for Economics and Business Research (Cebr) has predicted.
These forecasts are up from the predictions of 2.8% and 2% respectively that it made at the start of the year and reflect what it describes as a “continued improvement in forward-looking indicators for the UK economy”, including higher business and consumer confidence.
In a statement, Cebr said: “Households are likely to see their living standards improving, as earnings growth accelerates and headline inflation remains below 2% for the remainder of 2014. Declining unemployment is also likely to support household finances.”
Overall, Cebr expects real household disposable incomes to grow by 1.5% this year, after declining by 0.6% in 2013.
Nevertheless, Cebr claims that “significant weakness in the current account and government spending cuts will weigh on growth prospects beyond 2015”.
This is because some of the factors driving economic expansion at present – such as reduced saving and a return to typical levels of consumer confidence – will wear off.
In addition, the UK still faces a huge challenge in improving its trade position – Cebr expects a record-high current account deficit of £79bn this year. The deficit could lead to a depreciation of sterling going forward as markets become concerned about the persistence of this trade weakness.
Cebr also predicts that “deep government spending cuts” will need to be implemented beyond 2015 if the government is to close in on its deficit reduction targets beyond this fiscal year.
Scott Corfe, managing economist at Cebr and main author of the report, said: “The UK’s economic position has improved significantly since the start of 2013 and we expect solid growth of over 3% this year.
“However, challenges remain and economic growth is likely to fall back after 2014. There will be difficult government spending cuts to be made in the next parliament and the parlous state of the UK’s trade position could become a significant economic issue going forward.”
Sally Percy is editor of The Treasurer