Sustainability of UK Economic Recovery Rests on Interest Rates Hike Timing

Britain's economic recovery will see it hit the strongest GDP growth rate for seven years, but its sustainability hinges on the perfect timing of a hike in interest rates by the Bank of England.

Industry group the British Chambers of Commerce (BCC) forecasts 3.2% growth in 2014, the best rate since 2007, as employment hits a record high.

The BCC said it expects the central bank to lift its base rate from 0.5%, an all-time low, by 25 basis points in the first three months of 2015.

But it also warned the household consumption that had been driving much of the recovery would tail off in 2015 and hold back economic growth as higher interest rates cut disposable income.

"Greater efforts to boost exports and investment, and avoiding premature interest rate increases, will ensure that the recovery is sustainable and that the pace of growth can strengthen in the future," David Kern, chief economist at the BCC, said.

The organisation has downgraded its UK exports estimates from 1.9% to 0.8% for 2014 and from 4.2% to 4.1% for 2015. UK trade has been hindered by a number of factors, including ongoing economic weakness in Europe, a strong pound and global political turmoil.

"The UK recovery remains on course and we are now outperforming other major economies," Kern said.

"But many potential obstacles remain up ahead. Geo-political uncertainties such as Ukraine and the Middle East and sluggishness in the eurozone will remain serious challenges for some time.

"It is therefore doubly important to address the risks that we can tackle, such as the UK's huge current account deficit."