UK economy ‘to grow 2.5%’ in 2014
According to the think-tank, the unemployment rate is also likely to fall below 7% early this year – the threshold outlined by the Bank of England’s forward guidance on interest rates.
Meanwhile NIESR said CPI inflation is expected to be marginally above target this year, before dropping below target in 2015.
The prediction is similar to that of the Office for Budget Responsibility, as well as other forecasters.
The NIESR attributed the 2014 recovery in GDP to increased consumer spending, along with continued buoyancy in the housing market.
“The UK’s economic recovery has become entrenched. Above trend growth returned in 2013, while the remarkable performance of the labour market persists,” it said.
“Consumer price inflation returned to the Bank of England’s target rate in December, raising the prospect of a resumption of real consumer wage growth.”
A more supportive funding environment, combined with more certainty about future growth, will fuel robust growth in business investment, it added.
However, it remains concerned about falling productivity: “Our forecast remains one of a gradual improvement in productivity, but continued stagnation poses a downside risk to the UK’s medium-term prospects.”