• Text size      
  • Send this article to a friend
  • Print this article

Projections reveal UK economy to expand this year

THE UK economy now looks set to expand by over 3% this year, according to the latest projections from the Centre for Economics and Business Research (CEBR).

Its economists say their previous 2014 forecast of 2.8% has been upgraded to 3.1%, while next year's 2% projection is lifted to 2.2%.

However, CEBR warns that significant weakness in the current account and government spending cuts will dampen growth prospects beyond 2015.

It has weighed in on the "cost of living crisis" by saying real household disposable incomes will rise by 1.5% in 2014 after falling by 0.6% last year.

It also expects business investment to grow by a healthy 10.1% in real terms this year, helping rebalance growth away from the consumer.

CEBR says its upward revisions reflect a continued improvement in forward-looking indicators for the UK economy. "In addition to record high business confidence, we have seen consumer confidence rising again in recent months after plateauing towards the end of 2013, according to the YouGov/Cebr Consumer Confidence Index."

It says following concerns about the unbalanced nature of the economic recovery, consumer spending accounted for over 80% of the growth seen last year, growth should becoming more evenly spread as business investment grows strongly and the construction sector is supported by a robust pickup in housebuilding, especially in London.

It said: "While household consumption accounted for 81% of the economic growth seen in 2013, this is expected to decline to 46% this year as the economic recovery becomes more balanced."

But economic growth is likely to peak this year and fall back in 2015 and 2016, as some of the present drivers, reduced saving and a spike in consumer confidence, 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 £79 billion this year, with the deficit remaining high throughout much of its forecast period."

The deficit could lead to a depreciation of sterling going forward.

"Deep government spending cuts will also need to be implemented beyond 2015 if the Chancellor is to even come close to meeting his deficit reduction targets beyond this fiscal year," CEBR says.

Despite the complaints about austerity and "savage" spending cuts, the Coalition had made little progress in bringing down total government spending.

Real government spending in 2014 is expected to stand 1.8% higher than in 2010, but over the next Parliament it is projected to fall by 2.1% as spending cuts kick in, weighing on economic prospects.

Scott Corfe, managing economist at CEBR, said: "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."

Contextual targeting label: 
Business

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

227842