Unemployment will drop below 7% early this year, which the Bank of England said would be a threshold for potentially raising interest rates.
CPI inflation meanwhile will be marginally above target this year, before dropping below in 2015.
Recent GDP growth has been driven by consumer spending despite further falls in real consumer wages.
In a statement, the National Institute of Economic and Social Research said: “We expect consumer spending to remain the key driver of recovery in 2014 and 2015, supported by continued buoyancy in the housing market.”
They commented that despite house prices seeing a dramatic rise throughout the year, concentrated in London and the South East, yet they were uncertain regarding the magnitude of the impact of Help to Buy.
The Institute added that the fall in unemployment raises questions over the credibility of the Bank of England’s forward guidance, and that they expected interest rates to rise in the second quarter of 2015.
They said: “In the short term, increased employment is welcome, but over the medium-term the absence of productivity growth would limit real consumer wage growth.”
