Economy 'growing at above target rate

Interest rates in the UK may not yet have peaked, despite last week's 'no change' decision by the Bank of England's Monetary Policy Committee.

This is the implication of new calculations by the independent National Institute for Economic and Social Research, which suggest the economy may still be expanding at above its long-term sustainable growth rate of about 2.5 per cent.

The NIESR calculates that, after growing at a mere 2 per cent in the first quarter of this year, the economy may have expanded at 3.2 per cent a year in April-June.

NIESR economists believe the seasonal adjustments for the first quarter did not take sufficient account of the mild weather in February and March, which cut demand from the energy sector.

Industrial output recovered substantially in April and May.

NIESR director Martin Weale told The Observer: 'With industrial output running 5.5 per cent above the first quarter in April and May, GDP [gross domestic product] growth is likely to have accelerated in the current quarter, even if industrial output is flat in June.'