EC increases 2010 UK growth forecast to 1.7 pc but warns inflation could rise to 3 pc

Financial News

The EC has increased its prediction for economic growth in the UK from 1.2 pc to 1.7 pc for 2010 – a sign that the UK could be recovering from recession faster than first anticipated.

The revised figures come after the UK experienced its fastest 3 monthly growth rate since 2001. The rate of growth in the UK GDP rose sharply from 0.3% in Q1 to 1.2% in Q2 – more than twice the figure anticipated by the EC last spring. In spite of this good news, the body warned that as well as an increase in the UK’s growth forecast, a rise in the country’s inflation could also be imminent.

Many experts believe that inflation could now hit 3 pc for 2010 as a whole – a 0.6 pc increase from the forecast in May. The body said the rise in inflation could be caused by “higher retail energy prices and a stronger pass-through from sterling depreciation and the VAT rise”.

The country’s high inflation rate is raising concerns over how long the Bank of England can keep interest rates low and has led many experts to question the possibility of a ‘double-dip recession’ for the EU area – something which the EC has described as “highly unlikely”.

EU Economic and Monetary Affairs Commissioner Olli Rehn has mixed feelings on the current state of the EU economy.

“The European economy is clearly on a path of recovery… and the rebound of domestic demand bodes well for the job market. However, uncertainties remain and safeguarding financial stability and continuing fiscal consolidation remain key priorities,” he commented.