LONDON (Reuters) - Britain’s economy should exceed its pre-recession growth peak in the next few months, according to the British Chambers of Commerce, which on Monday upgraded its forecasts for this year and next.
The business group forecast full-year gross domestic product growth will hit 2.8 percent in 2014 and 2.5 percent in 2015, a slight upgrade from its December forecasts.
Unlike almost all of its major developed world economic peers, Britain’s economy at the end of last year was still 1.4 percent smaller than its pre-recession peak in early 2008.
The BCC said the economy will finally exceed that level in the second quarter of this year, a quarter earlier than it forecast in December.
So far, Britain’s economic recovery has been led by consumers and the housing market, and the Bank of England has said business investment and exports need to pick up for the recovery to be sustained.
The BCC said it expects growth in business investment this year of 6.6 percent, followed by 5.7 percent in 2015. But it warned it will remain below pre-crisis levels for some time.
“(The) economy is on the right track, but we mustn’t be fooled into thinking that it is back up to full strength just yet,” said David Kern, chief economist at the BCC.
“The UK’s current account deficit remains excessive, and without a stronger rebalancing towards net exports, we could face serious risks to our long-term economic health.”
He also said businesses will only increase their capital if low inflation and low interest rates persist.
The BoE has stressed it is in no rush to raise interest rates. It has suggested spring of 2015 as a possibility for the first hike in interest rates which have been at a record low 0.5 percent for five years. Two BoE policymakers have said a rate hike could come sooner if inflation pressures pick up.
“Some MPC members seem to be signalling early interest rate rises,” said Kern. “This kind of unhelpful speculation will only prevent business from investing and put pressure on an already strong pound, which could put the recovery at risk.”
Reporting by Andy Bruce; Editing by William Schomberg/Ruth Pitchford