New data expected to show sharp growth in the economy

The UK economy sprung back into life over the early summer months, official figures are expected to confirm later this week.

After coming close to stagnation over the six months between October and March the first estimate for GDP for the second quarter is expected to show the economy grew sharply.

The average forecast in the City is for quarterly growth of 0.9 per cent, which would be the strongest since the end of 1999 and equate to annual growth of 1.4 per cent.

Some analysts are forecasting growth of as much as 1.5 per cent, which would be the highest for 17 years and would undoubtedly trigger calls for a hike in interest rates sooner rather than later.

"The Bank [of England] cannot hold off much longer from hiking rates," said Juli Collins-Thompson, UK economist at BNP Paribas.

However, most economists believe the turbulence on the global stock markets and doubts over the strength of the economic recovery will continue to outweigh worries over domestic growth.

The latest ITEM Club report, published today by the accountants Ernst & Young and based on the Treasury's own economic model, expects the economy to grow just 1.7 per cent this year, its worst performance for a decade, compared with the Treasury's current forecast of between 2 per cent and 2.5 per cent.

The report's author, Professor Peter Spencer of Birkbeck College, London, said the dilemma facing the Bank's Monetary Policy Committee had intensified. But he added: "The Bank will wait until equity markets have at least stabilised and the international environment appears more robust – which may well not be until early next year."

He urged the Bank not to be distracted by the recent surge in house prices. "With the financial markets looking so precarious, it would certainly be an error to raise rates now," Professor Spencer said.

A separate economic forecast published today, from the accountants Deloitte & Touche, forecasts economic growth this year at an anaemic 1.5 per cent.

Its economic adviser, Roger Bootle, warned that the consumer economy, which has sustained growth over the last months, was about to "hit the buffers".

Mr Bootle said record debts, falling stock markets and a slowdown in the housing market would slow consumer spending enough to limit the need to raise interest rates.

However, he warned: "If spending does not slow on its own, policymakers have made it clear they will slam the brakes on households themselves. One way or another the outlook is for a period of considerably weaker activity in the household sector than that seen for most of the last decade."