With GDP expansion at 3.1 percent expected for 2014, Britain is set to achieve the strongest growth rate among the Group of Seven (G7) economies, said the EY ITEM Club Monday.
British GDP growth rate is higher than the 2 percent for Canada and 1.8 percent for Germany, as well as the 2.9 percent that it given three month before, according the EY ITEM Club's Summer Forecast report.
PERFECT COMBINATION
Besides consumption acting as the main driving force of the economic recovery in the first half, businesses are now expected to pick up the baton with capital investment by firms set top surprise on the upside, said the London-based economic think-tank.
Companies' capital spending might expand significantly by 12.5 percent in 2014, foretasted the report. And consumer spending might grow moderately at 2.5 percent in 2015.
British unemployment rate will continue its descent, falling from 6.5 percent in the three-month to May 2014, to 5.6 percent by the end of 2015.
The country's economy will enjoy a "perfect combination" of consumption financed by strong employment, rather than wage growth and borrowing, accompanied by low inflation and low interest rate, said the report.
"Business investment is being ramped up generating over half of the growth over the last year and helping to rebalance the economy away from consumption," said Peter Spencer, chief economic adviser to the EY ITEM Club.
"Underpinned by a strong labor market that provides the best of both worlds - boosting incomes via employment rather than wages, while keeping inflation low - the UK economy has hit the sweet spot," said Spencer.
The report predicts that real incomes of Britons will grow at 1.8 percent in 2014 and 2.2 percent in 2016.
INTEREST RATE RISE
The economic think-tank expects that house prices will increase by 9.1 percent this year and 7.4 percent in 2015 before they slow down to 4.2 percent in 2016, as the strength in market demand giving builders confidence to lay the foundation of a sustained program of house building.
But Spencer comments that:" Worries about interest rate hikes will reinforce the effect of the Financial Policy Committee's (finance watchdog of the Bank of England) recent measures and help prevent excessive risk taking."
The central bank last month launched new measures to cap the households indebtedness caused by the heating housing market and soaring mortgage lending.
Overall, the EY ITEM Club expects the first interest rate rise will not be later than early 2015, as wages will only recovery slowly this year, holding back the hawkish tones among the policy makers.
Spencer comments: "The markets are jumping the gun in thinking that rates will rise this year. Low inflation, the strong pound, and ongoing risks from the euro zone, all suggest caution in raising rates."./.