GDP growth in the West Midlands economy is expected to pick up and gain momentum in 2013, according to a new report, as businesses begin to react to a gradual upturn in consumer demand.

Despite the current cloudy outlook for the UK economy, PwCs economists are anticipating brighter conditions for the year ahead, supported by a rise in regional employment over the last quarter to 69.3 per cent.

GDP growth in the West Midlands is expected to reach 1.8 per cent in 2013, the highest growth outside Greater London and the South East where the recovery is strongest.

Nationally, consumer spending is expected to rise from around 0.7 per cent to 1.3 per cent, easing the squeeze on disposable incomes. A gradual rise in business investment in response to consumer demand is also expected, as well as some improvement in global growth to boost UK exports.

Mark Smith, regional chairman at PwC in the Midlands, said: "The outlook for the West Midlands economy is encouraging despite growth remaining broadly flat for 2012. Positive news about employment data, a fall in inflation and a rise in retail sales are all contributing to a more optimistic outlook in 2013.

"Recovery in the UK will remain fragile and vulnerable to the ongoing volatility in the Eurozone, where the economy is still in negative growth with falling employment. While businesses should continue to consider their contingency plans, they should also consider stepping up their export activity, reaching into global markets beyond the Eurozone.

"The healthy rebound to GDP growth of one per cent in the third quarter, together with other positive news supports our forecast for an improving outlook in the year ahead. Recent good news should also give the Chancellor a little more room for manoeuvre in his Autumn Statement on 5th December and we believe he should focus on measures to boost infrastructure investment while strengthening the supply side capacity of the economy in the longer term."