British GDP Set To Beat Rest Of G7, Research Finds

Britain's economy is set to grow faster than that of any other leading industrial nation over the course of 2014, new research has indicated.

The Ernst and Young (EY) Item Club's latest economic forecast has said Britain has hit a "sweet spot" of growth and is set to see gross domestic product (GDP) rise by 3.1 per cent, with 2015 bringing still-healthy expansion of 2.5 per cent.

This compares favourably with the Item Club's forecast a year ago, which had predicted one per cent growth in 2013 (in the event, it was 1.9 per cent) and 1.6 per cent expansion in 2014.

It said the current strong position has been brought about by a highly favourable combination of circumstances. This includes low inflation, thanks to the overall rise in incomes being the result of increased employment instead of large wage hikes. In addition to this, business investment has increased faster than anticipated, which is helping to ensure that the economy achieves its much-needed rebalancing towards exports and manufacturing.

EY commented: "Just 12 months ago, today’s mix of relatively robust growth, low inflationary pressures, and tangible progress towards economic rebalancing would have seemed like a pipe-dream."

This outlook may spell very good news for SMEs, which can invest in expansion without facing the prospect of prohibitively high increases in labour costs.

While the Item Club's outlook is very upbeat, it did warn that there are a couple of areas of risk and uncertainty. These are the continued Eurozone slump, which is restricting exports, while the interest rate situation looks "cloudy". However, the report suggested, even this downside has its good points, as the uncertainty over when the base rate will start to rise may help prevent the housing market from overheating.

The latest official estimate of GDP - covering the second quarter of 2014 - will be delivered by the Office for National Statistics later this week (July 25th).

It is widely expected to confirm that the UK economy is now larger than it was at its previous peak, before the recession began in 2008.

Expert Opinion

After an incredibly difficult few years for business, news of the outlook for the economy improving can only be a positive thing. Such reports will be welcomed by small businesses, many of which will already be spurred on by the growing number of opportunities arising for them to develop and expand their offerings. <br/> <br/>"Confidence is high and this research suggests this will likely continue in the coming months. As a result, we would urge small businesses to ensure their structure and operations are in good condition to take full advantage of what may come their way. <br/> <br/>"SMEs should in particular consider speaking to legal advisors, who will be able to guide them on how to avoid common growing pains which can arise from taking on new staff, finance issues and moving to new property." Steven Beahan - Partner