In its latest economic forecast, the CBI has upgraded its growth prediction for the year, citing lower oil prices, the ever-decreasing rate of inflation, a healthy labour market and an increase in take-home pay.

Lower energy prices are also feeding through to lower operating costs for companies, leaving more room for investment.

The employers’ organisation now expects the economy to grow by 2.7% this year (0.2% more than its November forecast) and by 2.6% next year. Business investment is expected to rise by 5.8% this year and by 6.5% next year.

The CBI predicts that the price of oil will remain below $65 per barrel throughout 2015 and 2016, while consumer price inflation is expected to stay under 1% for most of this year.

While the risk of deflation is growing, the CBI does not see a sustained period of widespread falling prices as likely, with the downward pressure from the oil price effect unwinding over time.

The CBI also forecasts that political volatility — both domestic and foreign — will continue as the General Election approaches, Greece’s political and fiscal future remains uncertain and the situation in Ukraine continues to unravel.

As a result, the CBI expects exporters to find it harder to win orders, while net trade is unlikely to provide much of a boost to growth over the next two years.

Katja Hall, the CBI’s deputy director general, said: “UK growth continues to outshine its counterparts in Europe, and progress is ‘steady as she goes’. While lower oil prices are keeping costs down for businesses and consumers, they are harming North Sea oil companies, jobs and investment in the industry.”