The National Institute for Economic and Social Research (NIESR) said the UK would grow by 1.2% this year and by 1.8% in 2014.

This is an increase of 0.3% in both years on its outlook from three months ago.

It said this was driven by a “rise in the prospectus for consumer spending growth… at the expense of household saving.”

The report said households have cut their savings rate from 6.7% last year to 4.2% already and NIESR expects that to fall to 3% soon. Spending has therefore picked up, boosting the economy.

However, NIESR warned growth next year could collapse back to 1% if the saving rate increased from its forecast of 3.6% to just 5.4%, still below last year’s level.

NIESR said: “One potential risk is that these low saving rates are not sustained. In any case, while consumer spending growth is necessary, a balanced recovery will require a significant contribution from net trade and [business investment]. We see relatively little sign of this as yet.”