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Business groups increase economic growth predictions

The UK economy will grow by 3.1% in 2014 and 2.7% in 2015, according to the British Chambers of Commerce (BCC).

The business group has raised its GDP forecasts from 2.8% in 2014 and 2.5% in 2015 following higher than expected growth in Q1 2014.

If the economy grows by the predicted 3.1% this year, it will be the first time since 2007 that annual growth has risen above 3%.

However, the BCC predicts economic growth to slow in 2015 due to an earlier than expected rise in interest rates.

Key economic forecasts:

  • Q2 2014 will see GDP rise above the Q1 2008 pre-recession peak
  • business investment will grow 8.8% in 2014 and 7.4% in 2015
  • the services sector will be the biggest contributor to UK growth in the next 3 years
  • UK interest rates will rise to 0.75% in Q1 2015, 2 quarters earlier than expected
  • the rate rise will affect consumer spending in 2015, causing a slowdown in the economy.

John Longworth, director general of the BCC, 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.

"The task at hand is to ensure that 2014 is not 'as good as it gets' for the UK economy. 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. To sustain investment momentum into the future, the government and the Bank of England need to give businesses the confidence they need to invest."

A separate study by the Confederation of British Industry (CBI) found that economic growth reached its highest recorded level in May 2014.

The survey of manufacturers, retailers and service sectors reported the biggest growth in business activity since data began in 2003.

Katja Hall, deputy director general of the CBI, said:

"The UK economy is performing strongly and this is thanks to rising business and consumer confidence, better credit conditions at home and improving global economic conditions.

"What's encouraging is that growth is becoming more broad-based, with solid increases in business investment over the past year. This bodes well for the year ahead."