European Commission upgrades UK growth forecast

Britain's economic prospects were upgraded by the European Commission today after the country recorded the fastest three-monthly growth rate since 2001.

The rate of growth in the UK's Gross Domestic Product - national wealth - rose sharply from just 0.3% in the first quarter of this year to 1.2% in the second quarter.

That was more than twice the increase predicted by the Commission's number-crunchers last spring and today a Commission report predicted that the "extraordinary boost... will not be repeated in the third quarter".

But the Commission cranked up its previous forecast of the scale of GDP growth in the UK for the whole of this year from 1.2% to 1.7%.

The report said the announced increase in the UK VAT rate next January should encourage higher private consumption in the fourth quarter of 2010 too, sparking another acceleration in growth in the fourth quarter.

On the other hand, the higher VAT rate will also dampen economic activity in the first quarter of 2011.

But the current upward revision in the UK economic forecasts, and more optimistic forecasts for the other major EU economies of France, Germany, the Netherlands, Spain, Italy and Poland, boosted the Commission's assessment of overall EU growth prospects to what the report called a "sizeable increase" of 1.8% for 2010.

But the report cautioned: "The recovery remains fragile however, with uncertainty high and developments across member states uneven."

EU Economic and Monetary Affairs Commissioner Olli Rehn said: "The European economy is clearly on a path of recovery, more strongly than forecast in the spring, 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."

The Commission says that, in the wake of the global economic downturn, "a double-dip seems unlikely."