New Forecasts Predict UK Growth Of 2.9% In 2014

Wages are set to rise above inflation for the first time in six years, according to EY.

The consultancy believes that low inflation, coupled with economic growth and complemented by a strong pound, will mean that the average Briton will walk away with more money than in 2013.

EY predicted this as part of its ITEM Club forecast, which also saw experts explain they expect growth of 2.9 per cent in 2014, which will be driven by improved manufacturing figures and a boost in productivity.

But all eyes were on EY's predictions in regards to the Monetary Policy Committee (MPC) of the Bank of England.

The institution has kept interest rates on hold at their record low of 0.5 per cent for some time now and there are growing calls among investors for the bank to raise this so savers benefit.

But with wage packets going up and the economy growing at the fastest rate of any developed country, it is unlikely the MPC will alter its course and EY believes interest rates will stay on hold at 0.5 per cent until the third quarter of 2015.

However, even after this EY isn't expecting a large boost in the base rate, with experts predicting it will rise "very gradually", perhaps to 0.75 per cent or one per cent.

Mark Gregory, EY's chief economist, said: "In a growing labour market, private sector wages are improving and shortages are appearing, particularly in sectors such as manufacturing.

"This presents an opportunity for businesses to ensure they have they got their people strategy and business investment right."

However, Peter Spencer, chief economic advisor to EY's ITEM Club, was more cautious, noting: "We're not going back to where we were prior to the financial crisis. The pickup in earnings will be slow and steady."

But with more optimism on the horizon, the UK's business community will likely relish the economic boost predicted in EY's report.

Expert Opinion

This is yet another piece of research which has indicated that hopes are high that the improvements seen in the economy in recent months are going to continue across the rest of this year. <br/> <br/>"All of this is very good news for small businesses which are looking to grow and expand their operations across 2014, as it signals that confidence is rising and makes the opportunities for investment and developing new services are likely to continue to emerge. <br/> <br/>"Small companies need to ensure they have the right support network in place to benefit from the changes in the economy, with legal advice being a key component of this." Steven Beahan - Partner