By Claire West

The Institute of Chartered Accountants in England and Wales (ICAEW) has upgraded its growth forecasts for the UK economy this year from 1.0% to 1.2%. This would mean the UK economy would see its strongest pace of expansion since 2010.

After marginal growth of just 0.2% in 2012, ICAEW revision reflects the improvement in business confidence. The ICAEW/Grant Thornton UK Business Confidence Monitor stands at +16.7 up from +12.8 in Q1 2013

• Capital investment expectations have also improved from 1.9% forecast last quarter to 2.5% in 2013
• Salary growth though is set to be weak this year resulting in another decline in real incomes. ICAEW expects total pay growth of just 1.5% in 2013
• Public sector job shedding continues to place downward pressure on employment. ICAEW expects the unemployment rate to rise from 7.8% to 8.1%

Michael Izza, ICAEW Chief Executive, said: “Businesses right across the UK from all sectors and of all sizes are telling us that they are doing well at the moment. The main risk to this forecast being achieved is the continued economic weakness in the Eurozone and the forthcoming Comprehensive Spending Review, when more austerity measures are expected. Another downside is that companies remain cautious about spending and have yet to increase their investment plans.”

ICAEW’s upgraded outlook comes after the Bank of England recently forecast that growth would be a little stronger and the OECD cuts its prediction from 0.9% to 0.8% for the year.