U.K. Expansion Broadens With Increased Investment, EY Item Says

The U.K. recovery is gaining traction as business investment helps growth broaden, EY’s Item Club will say in its latest forecast, to be published tomorrow.

Gross domestic product will increase 3.1 percent in 2014, the London-based accounting firm will say, revising up a forecast of 2.9 percent published in April. That puts Britain on track to be the fastest growing economy among the Group of Seven nations this year with the balance of growth shifting to business investment from consumer spending.

“The U.K. has hit the sweet spot,” Peter Spencer, chief economic adviser to the EY Item Club will say. “Investment is being ramped up, generating over half of the growth over the last year, and helping to rebalance the economy away from consumption. Underpinned by a strong labor market that provides the best of both worlds.”

Gross domestic product expanded 0.8 percent in the second quarter, matching the first quarter’s growth, according to the median estimate of 36 economists in a Bloomberg survey. On an annual basis, the economy grew 3.1 percent, a separate poll predicted before the release on Friday, July 25.

Capital spending by firms will increase 12.5 percent this year, the Item Club will predict.

“Stronger corporate confidence in future demand is driving fixed investment,” said Mark Gregory, chief economist at EY. “After several false starts, this time it could be different.”

Still, sluggish wage growth and inflation below the Bank of England’s 2 percent target will prompt policy makers to keep their benchmark rate at a record low until the first quarter of next year, the report will say.

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