Among the world's seven leading industrialized nations this year, the U.K. is set to be the fastest growing economy. A leading economic think tank, has predicted that the country would move from recovery into expansion in 2014.
The U.K.-based EY ITEM Club, a group of non-government economists, has forecasted that the country's economy could expand by 3.1 percent this year, up from an estimate of 2.9 percent back in May. This compares to 2 percent for Canada and 1.8 percent for Germany.
Several areas in the U.K. economy have been presenting promising upturns since the start of 2013 and have shown little signs of abating. U.K. inflation rose much faster than expected in June, in stark contrast to its neighbors in Europe that are dealing with weak growth in consumer prices. The unemployment rate fell to 6.5 percent from March to May and the U.K. has received praise from the likes of the International Monetary Fund and the Organization for Economic Co-operation and Development.
Business investment has been bolstering an economy that has been previously reliant on consumer spending and a strong labor market has also reinforced the return to growth.
The British Pound Sterling has continued a seemingly never-ending rise, recently pushing above 1.70 against the dollar, with the Bank of England expected to be one of the first central banks in the developed world to raise its benchmark interest rate. Some analysts have advised that the U.K. recovery is being built on debt, with consumers taking out loans or dipping into savings to enjoy the lives they became accustomed to before the financial crisis. However, EY ITEM Club is adamant that the economy has become more balanced.
Workers’ wages, however are not expected to rise along with the healthy expansion. Official data last week showed earnings excluding bonuses rose by an annual 0.7 percent in the three months through May, and the EY Club predicts that further growth in earnings could be "steady rather than spectacular."
U.K. consumption is expected to be financed by low inflation, low interest rates and additional workers entering the labor market, the club said, rather than any wage growth. It predicts that real incomes will grow at 1.8 percent in 2014 and 2.2 percent in 2016 including the effects of inflation.