U.K. Growth Forecasts Raised by European Commission on Spending

The European Commission raised its growth forecasts for the U.K. and said momentum in the economy will continue amid “robust” spending by consumers and businesses.

Gross domestic product will grow 3.1 percent this year and 2.7 percent in 2015, up from projections of 2.7 percent and 2.5 percent made in May, the European Union’s Brussels-based executive said in a statement today. It sees growth slowing to 2.5 percent in 2016.

The outlook contrasts with that for the euro area, where growth forecasts were cut across the board as some nations struggle to fully recover from the financial crisis and face the threat of deflation. Bank of England policy makers, who meet this week, have cited risks from the region as a reason for keeping the key interest rate at a record low.

“The strong growth enjoyed in the first half of 2014 is expected to continue, driven by private consumption and investment,” the commission said. “Net exports are projected to detract from growth.”

Business investment will pick up to between 7 percent and 10 percent a year from 2014 to 2016, up from 3.2 percent in 2013, the forecasts show. The economic improvement will help create jobs and boost disposable income, according to the commission, which sees the unemployment rate dropping to 6.2 percent this year and falling further thereafter.

U.K. inflation, now at 1.2 percent, will accelerate to only 1.9 percent by 2016, still below the central bank’s 2 percent target. The government budget deficit will drop to 3.2 percent of GDP in the 2016-2017 fiscal year from 5.2 percent for the year ending March.

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