SUSTAINED consumer spending along with greater business investment will help boost UK economic growth this year, the CBI has said.

The business group upped its forecast for GDP growth in the UK to 2.6 per cent, up from the 2.4 per cent it predicted in June.

The projection for 2016 was increased to 2.8 per cent, from 2.5 per cent.

It also predicts interest rates will rise to 0.75 per cent in the first quarter of next year, having previously pencilled in the increase for the second quarter.

The CBI said it was more bullish as a result of better productivity in the first half of this year which is starting to feed through to stronger wage growth in some parts of the economy.

Household spending is tipped to remain buoyant partly as a result of low inflation and depressed commodity prices.

Along with that the CBI said its own surveys indicate an appetite for capital spending by businesses causing it to revise growth projections upwards from 4.5 per cent to 6.2 per cent.

John Cridland, CBI director-general, said: “We’re encouraged by the twin engined-growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment.

“We’re also seeing tentative signs of productivity picking up.”

However the CBI did warn export markets may continue to drag for the immediate future even though risks from the eurozone have “receded” slightly.

But a weakening outlook from China and some other emerging markets along with a strengthening pound could affect trade well into 2016.

Mr Cridland said: “The outlook on exports is somewhat muted: the strong pound is hampering our competitiveness abroad and growth in the eurozone, our biggest trading partner, and will remain subdued for the foreseeable future, particularly given renewed uncertainty.”

Rain Newton-Smith, CBI director for economics, said: “We’ve revised down our exports forecast for 2016, largely due to slower growth in China bearing down on global prospects, and a stronger Sterling.

“It’s important to remember, however, that even if China only grew by five per cent this year, that’s the same as adding an economy the size of Belgium to the global economy each year.

“And China’s transition away from credit-fuelled investment growth to a more consumer-oriented economy provides plenty of opportunities for British businesses.”