UK Economy Forecast To Outstrip Global Rivals

The UK economy is forecast to grow faster this year than any other country in the group of G7 developed nations.

A report by the Ernst and Young Item Club - an influential economic forecasting group - predicts GDP will hit 3.1% this year.

But it says slow wage growth will keep interest rates on hold until the first quarter of next year.

Its chief economic adviser Peter Spencer said: "The markets are jumping the gun in thinking that rates will rise this year.

"Low inflation, the strong pound and ongoing risks from the eurozone all suggest caution in raising rates."

The predicted growth in the UK's GDP, driven by business investment rather than consumer spending as has been the case up to now, compares with forecasts this year of 1.8% for Germany and 2% for Canada.

Mr Spencer said: "What a difference a year makes. Last summer any growth looked better than no growth and the outlook remained uncertain.

"But, confidence has now returned and economic uncertainty has dropped well down the worry list."

The report forecasts the UK economy will enjoy "a perfect combination" of consumer spending financed by strong employment, rather than wage growth and borrowing, accompanied by low inflation and low interest rates.

The survey also expects investment in the housing market to rise from 7.6% this year to 13.4% in 2016 as the industry, helped by measures such as the Government's Help to Buy scheme, gains confidence.

But because of a shortage of housing stock the report estimates house prices will jump 9.1% this year, 7.4% next year, before slowing to 4.2% in 2016.

Mr Spencer added: "Investment in our housing stock is much lower than it needs to be in order to put a roof over the head of the UK's growing population."

The property website Rightmove (LSE: RMV.L - news) has also raised its forecast for annual house price growth in 2014, despite a fall in values this month for the first time this year.

House prices have fallen 0.8% so far this month, but the firm forecasts annual prices will lift 8% this year, boosted by the Help to Buy scheme.