In its latest economic forecast, it said: “The UK’s economic recovery has become entrenched.”
Last year the country saw above trend growth and the “remarkable performance” of the labour market persists, it added.
NIESR said unemployment would drop through the Bank of England’s (BoE’s) 7% threshold early this year and CPI inflation would be marginally above target this year, dropping below target in 2015.
It also forecast that on current plans the public sector finances would be in surplus in 2018-2019.
The think tank statement said: “We expect consumer spending to remain the key driver of recovery in 2014 and 2015, supported by continued buoyancy in the housing market. House prices have seen a dramatic rise throughout the year, concentrated in London and the South East.”
However, it added: “There is considerable uncertainty over the magnitude of the impact of the second Help to Buy Scheme: stronger house price inflation would lead to even stronger consumer spending growth in 2014.”
NIESR commented: “Domestic demand growth will not be solely dependent on the consumer; a supportive funding environment, coupled with further reductions in uncertainty about future demand growth, is also expected to support robust growth in business investment. Net trade will remain weak however, with weakness in the Euro Area, the UK’s single most important export market, continuing to weigh on demand for UK exports.”