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Rapid expansion of the labour supply and robust business investment means that potential output is likely to have grown strongly last year. Therefore, based upon the latest data for GDP, we estimate that the output gap only narrowed very slightly in 2014, ending the year at 4% of potential output., The prospects for potential output growth are favourable, with the labour supply set to be boosted by sustained strength in inward migration and the staged increase in the State Pension Age, and robust growth in business investment continuing to deepen the capital stock., This will provide the conditions for relatively strong growth and low inflation over the medium term, with GDP growth expected to average 2.6% a year from 2015-19. This is some way below the average of the decade prior to the financial crisis, but it would represent a clear step up on the average growth rate achieved between 2007-14., Our estimate of the output gap is much larger than that of the OBR. This suggests that the UK's structural deficit is smaller and that the degree to which fiscal policy needs to be tightened may not be as great as the OBR estimates. [ABSTRACT FROM AUTHOR]