The European Commission has given a cautious upgrade to Britain’s growth prospects due to healthier investment, lower unemployment and a trade deficit that’s improving.
Back in November they predicted a growth of 2.2%, although now they’ve brought this up to 2.5% instead. In the meantime, their prediction for 2015 of 2.4% has remained the same.
The EC have been quick to point out that their new forecast depends strongly on private consumption, something that could “decline sizeably” if, according to them, any future interest rate rises cause an increase in borrowers to put off paying their debts.
This comes as the country’s jobless rate is predicted to fall to 6.8% by the end of 2014, while inflation is not thought to veer away from the 2% target set by the Bank of England.
The EC said: “Growth is likely to continue to come almost exclusively from domestic demand.” Although they made clear that, “…the upturn in investment may fail to materialise and private consumption may decline sizeably, as a result of continued weak wage growth, interest rate rises or the household debt burden weighing down on spending.”
The Chancellor George Osborne has echoed the Commission’s concern about private consumption when he said that the UK’s recovery would be on shaky ground until it could rely on other factors than consumer spending.