UK economy set to grow by 2.5% this year, NIESR forecast suggests

The UK's economic recovery is set to continue its positive trend over the course of 2014, reaching an estimated level of growth of 2.5% by the end of the year and 2.1% in 2015, a new forward-looking report by the National Institute of Social and Economic Research (NIESR) suggests.

Arguing that the economic recovery is quite "entrenched" by now, researchers from NIESR expect that consumer spending will remain the key driver of recovery in 2014 and 2015, supported by continued buoyancy in the housing market.

Nevertheless, the report's authors argue that domestic demand growth will not be solely dependent on the consumer, since a supportive funding environment, coupled with further reductions in uncertainty about future demand growth, is also expected to support robust growth in business investment.

On the downside, net trade will remain weak, with weakness in the Euro Area, the UK's single most important export market, continuing to weigh on demand for UK exports.

The think thank's report also applauded the overall performance of the labour market, pointing out that employment growth accelerated throughout 2013, despite productivity still lagging behind, the direct effect being a cap on real consumer wage growth.

The NIESR report suggests that overall productivity levels are set to increase across the UK over the coming years, but continued stagnation still poses a downside risk to the UK's medium-term prospects.

The paper also tackled the topic of the Government's economic growth policies, suggesting that the current policy framework will have some significantly positive effects on the economy, with the overall budget, including investment spending, moving into surplus in 2018-19.