Rapid UK growth on course to continue

The strong rate of expansion has put Britain on course to be the fastest growing country in the G7 this year, according to the International Monetary Fund (IMF). PwC, the accountancy firm, also lifted its forecasts for the UK economy yesterday. It now believes Britain will expand by 2.8pc this year, up from a forecast of 2.6pc last month. This puts its growth rate above America, Germany, Japan and Australia.

"The recovery is becoming more solid," said Michael Izza, chief executive of ICAEW. "Employment growth is accelerating and salary growth is now keeping pace with inflation."

The balance of business confidence in the second quarter rose to 37.3pc, according to the ICAEW/Grant Thornton business confidence monitor, slightly up from 37.2pc in the first three months of the year.

Respondents expect 450,000 private sector jobs to be created over the next year, with small and medium enterprises leading the expansion.

However, the ICAEW warned that skills shortages in some sectors were becoming a “major issue”. it said shortages were most marked in the construction sector, which powers around 6pc of the economy.

“There is a real concern amongst business owners that they will not be able to recruit employees with the right skills,” said Mr Izza. “This is a real threat to the sustainability of the recovery.”

While a strong rise in business investment this year is expected to steer Britain towards a more balanced recovery, the EC’s forecasts yesterday highlighted that the economy remained reliant on consumer spending to drive growth. “Private consumption is forecast to remain a key determinant of growth,” the EC said on Monday.

It believes households will continue to dip into their savings this year and next in order to fund purchases. Britain’s saving ratio is expected to remain at 5.1pc this year – revised down from a forecast of 6.1pc just three months ago.

“Reluctance by households to further reduce savings to maintain consumption growth is a downside risk to the forecast,” the EC said.

It also believes Britain’s current account deficit will be 3.8pc of gross domestic product this year. The deficit, which measures trade, is expected to remain the widest in Europe over the next two years.

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