The CBI now expects the British economy to expand by 1.2 per cent in 2013, up from 1 per cent, amid signs of a pick-up in business confidence.
The prediction is the latest good news for Scots struggling against the climate of austerity in recent years, marked by spending cuts, falling living standards and rising unemployment.
But there are concerns that firms are still hoarding cash rather than spending it, with the recovery driven by consumer spending, experts have warned.
The CBI, which represents 240,000 UK businesses, says growing optimism across the services, construction and manufacturing sectors has added to hopes that the recovery is gathering pace after 0.6 per cent growth already between April and June this year.
It is set to continue in 2014, with the organisation lifting its forecast from 2 per cent growth to 2.3 per cent, as people have more cash to spend and housing demand rises.
CBI director-general John Cridland said: “The economy has started to gain momentum and confidence is picking up, but it’s still early days.
“We need to see a full-blown rebalancing of our economy, with stronger business investment and trade before we can call a sustainable recovery. We hope that will begin to emerge next year, as the eurozone starts growing again.”
First Minister Alex Salmond last night said that recovery is “gaining ground” in Scotland.
Mr Salmond said: “We have a higher employment rate, lower unemployment rate than the UK, stronger economic growth and youth unemployment figures outperforming the UK rate.
“We are committed to building sustainable economic growth for Scotland and we are adopting a specifically Scottish approach to this. With the full fiscal and economic powers of independence the Scottish Government could do yet more to strengthen our economy and create more jobs.
“All of the key labour market indicators are now outperforming the rest of the UK – rendering ridiculous the claims of George Osborne that the independence debate would damage the Scottish economy.”
The current state of the Scottish economy will become clearer when the latest GDP figures are released this week.
But it emerged last week that the value of goods exported from the UK jumped to a record £78.4 billion between April and June. Manufacturing has also hit its highest level in 21 years, while new car sales surged by 12.7 per cent in July.
House prices have also been on the rise and are £20,000 higher now than at the start of 2013, according to new figures today from Rightmove, although there was a slight fall in August. This has mainly been driven by a London boom with prices in Scotland still struggling.
Unemployment has also shown consistent falls in recent months in Scotland, with the number of people in work also on the rise.
Sales of new cars from Britain’s resurgent motor manufacturers have now risen for 17 months in a row, with Ford’s Fiesta and Focus proving the most popular.
And official figures recently showed total factory output jumped 1.9 per cent in June with all 13 sectors of British manufacturing – including food and drink, computers and aircraft – expanding in a single month for the first time since June 1992.
However, the CBI warned that a hoped-for rebalancing of the economy to become less reliant on consumer spending and more focused on investment and trade is taking longer than expected.
Labour’s finance spokesman in Scotland Iain Gray welcomed the prospect of growth, but added: “We need consistent and dedicated action from both Westminster and Holyrood to continue to drive the recovery and ensure it is sustainable and the benefits are fairly distributed.
“With real wage levels falling month on month and more of the workforce forced into part-time or zero-hours jobs life remains insecure for too many Scots.”
The CBI upgrade comes after figures last week showed that the eurozone, Britain’s biggest trading partner, had emerged from recession. Improvements in Europe together with a broader global recovery are expected to give a positive boost to exports.
A recovering domestic situation should also mean more imports so the trade contribution will remain small, the CBI also warns.
Murdo Fraser, the Tory convener of Holyrood’s economy committee, said: “This shows that the brave and difficult decisions taken by the UK government are working.”
Lib Dem leader Willie Rennie said the coalition government has made it clear that creating jobs and supporting growth is a “real priority”.
“There is a long way to go but employment is rising in Scotland and this latest forecast from the CBI suggests that businesses are more confident about the future than they have been for some time,” he said.
“We all want to see a stronger UK economy and there is plenty of work that remains to be done. But this latest forecast is good news for businesses and good news for Scotland.”
But SNP Treasury spokesperson Stewart Hosie voiced concerns that business investment is expected to fall this year.
He said: “We have had five wasted years of austerity under Labour and the Tories, and this positive forecast is in spite of the Chancellor, not because of him.”
Mr Cridland urged the government to “get behind talented UK businesses” to help them break into new export markets around the globe.
A slow strengthening of household spending in the second half of this year and through the next is expected, with confidence lifting and better credit conditions.
Business investment, set to fall 2.8 per cent this year, should grow by 7.3 per cent in 2014, the organisation said, with export growth of 0.7 per cent rising to 4.9 per cent – though imports are also expected to go up, from a negative 0.3 per cent this year to a rise of 4.4 per cent.
Unemployment is likely to remain “relatively sticky” over the medium term, falling from 7.8 per cent in 2013 to 7.6 per cent in 2014, as the number of hours worked increases and productivity begins to recover.
Analysis: ‘Return to growth remains more a hope than a likelihood’
Commentary on the recent performance of the UK economy has tended to suggest that a strengthening recovery is in the offing.
Is such a view warranted? It is certainly true that emerging data for the UK has been more promising than for some time. Business surveys are positive,
GDP growth was relatively good in the last quarter and future growth rates have been revised up. All of this is good news but if these are the foundations of a recovery they are still very shaky ones.
For example, recent UK GDP figures have been supported by growing household consumption. That would be fine if it reflected consumption growing as a result of higher earnings but it hasn’t.
Inflation adjusted household income has been flat to falling which means that the growth in consumption is matched by a fall in savings by households, probably not a sustainable position.
The economic recovery was, and still is, supposed to come about via a rebalancing of the economy, led by a recovery in investment and exports. However, remarkably, business investment is still falling, and in the first quarter of 2013 was 32 per cent below its early 2008 peak.
Meanwhile, the trade balance was little better in 2012 than it was in 2009. So while growth of any kind is a good thing, especially if it emboldens business to increase its investment plans, it is still failing to emerge in the sectors where it is most needed.
Although UK forecasters and the IMF have been upgrading, slightly, their UK forecasts, the IMF has at the same time been downgrading its forecasts for the world and for “advanced economies” as a whole. This highlights that many of the euro areas economic problems, for example, have not been solved, rather they are in abeyance. The euro is still fragile as are many of the banks operating in these countries.
Ever since the current recession started most economic forecasters and commentators have been predicting a return to normal growth within a couple of years. So far none of these predictions have proved correct. Nothing dramatic has happened in the last year or so to change the economic fundamentals and so such a return to growth remains more of a hope than a likelihood.
• Professor John McLaren is an economist with the Centre for Public Policy for Regions at Glasgow University.