The Confederation of British Industry (CBI) has upgraded its annual economic forecast for 2015 from 2.4% to 2.6%.
Quarterly growth will average 0.7% until the end of 2016, according to their analysis.
The UK’s leading business group also forecast rising GDP growth of 2.8% in 2016.
The analysis suggests that improving productivity levels and faster wage growth will continue to strengthen the economy over the next 2 years.
The CBI anticipates a prolonged period of low inflation which will provide an additional consumer-driven economic boost.
John Cridland, director-general of the CBI, said:
“We’re encouraged by the twin engined-growth of household spending, spurred by stronger wage increases and low inflation, buttressed by business investment.
“But the outlook on exports is somewhat muted: the strong pound is hampering our competitiveness abroad and growth in the Eurozone, our biggest trading partner, and will remain subdued for the foreseeable future, particularly given renewed uncertainty.”
Rain Newton-Smith, director of economics at the CBI, also warned that export prospects were likely to be hit by a Chinese economic slowdown:
“We’ve revised down our exports forecast for 2016, largely due to slower growth in China bearing down on global prospects, and a stronger Sterling.”
China fears shake European markets
European markets were hit on Monday after the Shanghai Composite – China’s biggest stock market – fell 8.45%, its biggest daily loss since 2007.
London’s FTSE 100 fell almost 3% upon opening, while stock markets in France and Germany lost more than 3% in early trading.
The FTSE 100 has now entered correction territory after losing 15% since hitting a record high of 7104 in April.
Authorities have failed to calm panic in the Chinese markets which has seen the Shanghai stock market plummet more than 40% since June 2015.