UK economy to grow at fastest rate in G7

This year will see the UK economy expand faster than any other country in the G7, a new report finds.

Positive news keeps coming for the UK economy, which it seems is finally shaking off the effects of the financial crisis. New figures from the EY ITEM Club on 21 June show that the UK will not only continue to grow in 2014, but will outstrip some of its biggest global rivals.

In its latest Summer Forecast the body predicts that gross domestic product (GDP) will grow at a rate of 3.1 per cent in 2014. That will be the strongest rate of any economy in the G7, with Canada expecting growth of two per cent of 1.8 per cent anticipated in Germany.

Peter Spencer, chief economic advisor to the EY ITEM Club, says that any concerns about the economic outlook for Britain have now been put to rest and business investment is expected to pick up.

“Last summer any growth looked better than no growth and the outlook remained uncertain,” he explains, “But, confidence has now returned and economic uncertainty has dropped well down the worry list.”

Next year will see growth slow to 2.5 per cent, according to the report, as consumer spending begins to slow down. But companies and a fresh wave of investment are expected to pick up the slack and play a bigger role in driving growth.

Capital spending by companies is expected to rise by an eighth this year, as firms that have built up considerable cash reserves over the past few years of economic frailty are becoming confident enough to pump funds into new ventures.

But consumer spending could well be curtailed by the fact that wage rises are expected to remain slow. Improvement in the labour market will be demonstrated by more people getting into work rather than significant pay increases.

Thus, while unemployment is expected to keep falling to 5.6 per cent by the end of next year, real incomes will grow more slowly. Wages are rising by just 0.7 per cent excluding bonuses this year so far, but they are expected to grow over the next two years.

< Top image: Simon & His Camera >