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UK growth could reach 7-year high in 2014: BCC

This is 'as good as it gets' for UK economy: BCC

The U.K. economy will expand at its fastest rate this year since 2007, according to revised forecasts by the British Chambers of Commerce (BCC) out on Friday.

The body, which represents 92,000 businesses across the U.K., upped its growth estimate for 2014 to 3.1 percent, having forecast 2.8 percent back in March.

If 3.1 percent growth materializes this year, it will be the first time since 2007 that growth has exceeded 3 percent.

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"Our forecast confirms that Britain is leading, rather than following, other major economies when it comes to short-term growth, which is great news," said John Longworth, director general of the BCC, in a news release.

The BCC also increased its outlook for 2015 to 2.7 percent growth, from 2.5 percent. Its forecast for 2016 remained unchanged at 2.5 percent.

"The task at hand is to ensure that 2014 is not 'as good as it gets' for the UK economy," said Longworth.

"Everything possible must be done to avoid slower growth in future. We need to invest, innovate, export and build."

Bond manager Pimco estimates U.K. growth will average 2-2.5 percent over the next three to five years.

"We would see growth as being relatively robust, but no runaway by any means," said Mike Amey, a portfolio manager in Pimco's London office, at a news briefing on Wednesday.

"We think the U.K. recovery is reasonably on track… [But] the recovery will not be as swift as other ones."

In the light of its new growth forecasts, the BCC brought forward its estimate for when the Bank of England will start raising its key interest rate from the record-low of 0.5 percent.

It now expects the Bank to raise its rate to 0.75 percent in the first quarter of 2015, two quarters earlier than previously envisaged. The rate is then seen reaching 1.25 percent in the fourth quarter of 2015 and 2.25 percent by the fourth quarter of 2016.

Read MoreBank of England leaves rates, asset purchases unchanged in May

"The Monetary Policy Committee (MPC) must reassure businesses that when rates start rising, increases will be gradual, so that unwelcome surprises are avoided," said BCC Chief Economic David Kern in the release.

"The MPC's efforts to provide clarity on the future path of interest rates are being hampered by repeated calls for early rate rises whenever positive news is published, and by apparent inconsistencies between Governor Mark Carney's reassuring comments and the MPC's minutes."

Kern added that the strong rise in sterling had made U.K. exports more expensive and was an important reason for not raising the interest rate prematurely. Sterling has gained around 11 percent against the U.S. dollar over the last 12 months, and 5 percent against the euro.