The British Chambers of Commerce (BCC) has upgraded its UK growth forecasts for the next two years – from 2.8% to 3.1% in 2014 and from 2.5% to 2.7% in 2015. The forecast for 2016 is unchanged at 2.5%.
It's "great news" according to John Longworth, BCC director general, but he cautions: "The task at hand is to ensure that 2014 is not 'as good as it gets' for the UK economy."
With expected growth of 3.1% this year, it will be the first time since 2007 that annual growth has been above 3%. The BCC expects GDP to exceed its pre-recession peak in Q2 2014.
However, the BCC has warned that Britain still has a lot of work to do to ensure long-term growth prospects. It says that the expected slowdown in growth in the next two years is a warning sign that the UK is overly reliant on consumer spending as a driver of growth.
Longworth said: "Our forecast confirms that Britain is leading, rather than following, other major economies when it comes to short-term growth, which is great news. But make no mistake – we still have a lot of work to do."
He added: "Everything possible must be done to avoid slower growth in future. We need to invest, innovate, export and build. While we forecast business investment to grow strongly over the next three years, that investment is rising from an extremely low base."
On interest rates, Longworth said: "The government and the Bank of England need to give businesses the confidence they need to invest. We urge the Bank of England to keep official interest low for as long as possible, and ensure that future rate rises are gradual and modest."
The BCC economic forecast predicts that interest rates will rise to 0.75% in Q1 2015, two quarters earlier than previously forecast. It predicts further modest increases, in 0.25 percentage point steps, with official interest rates reaching 1.25% in Q4 2015 and 2.25% in Q4 2016.