The UK economy looks set to expand by over 3% this year, up from previous predictions, according to new projections from the Centre for Economics and Business Research (CEBR).
The CEBR's latest research predicts that the UK economy will grow by 3.1% in 2014 and by 2.2% in 2015 – up from previous forecasts of 2.8% and 2.0% respectively.
The upward revisions, it says, reflect a continued improvement in forward-looking indicators for the UK economy. In addition to record high business confidence, there has also been a rise in consumer confidence.
The CEBR expects real household disposable incomes to grow by 1.5% this year after declining by 0.6% in 2013. Households are likely to see their living standards improving, as earnings growth accelerates and headline inflation remains below 2% for the remainder of 2014.
Business investment is set to grow by 10.1% in real terms this year, suggesting that the economic recovery is becoming more balanced. While household consumption accounted for 81% of the economic growth seen in 2013, this is expected to decline to 46% this year.
However, there are challenges ahead. Scott Corfe, managing economist at CEBR, said: "The UK's economic position has improved significantly since the start of 2013. However, challenges remain and economic growth is likely to fall back after 2014. 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."
Meanwhile, a new report by the Institute for Public Policy Research (IPPR) – Small firms, giant leaps – has found that SMEs are disproportionately driving the UK's recent labour market recovery. It finds: "Between 2008 and 2011, 88% of individuals moving from unemployment into employment found work in either an SME or self-employment."
Commenting on the report, John Allan, national chairman of the Federation of Small Businesses (FSB), said: "We hear a lot about how small businesses are the engine of the economy and this research confirms this. Micro and small businesses have by far and away been the biggest job creators since the recession. This report also shows the world of work is changing with self-employment, part-time and temporary work growing since the recession."