UK growth forecast of 2.8% set to beat euro zone

UK chancellor of the exchequer Gordon Brown is on course to be able to announce the British economy will in 2006 outperform his most optimistic budget forecast.

With growth having bounced back from its weak spell a year ago, the economy would have to return to the doldrums in the second half of the year for the annual growth rate not to exceed the chancellor's 2 to 2.5 per cent forecast.

After his reluctance to admit he had been much too optimistic on growth last year, any positive surprise to his forecasts this autumn will provide a perfect backdrop for his bid to become prime minister once Tony Blair steps down.

The Bank of England yesterday published its detailed economic forecasts, indicating that it expects growth of 2.8 per cent this year and 3.1 per cent next year.

If the economy performs as the Bank of England expects for the rest of the year, it will put Britain again ahead of its euro-zone partners in the European growth league table.

Even though euro-zone growth of 0.9 per cent in the second quarter exceeded the 0.8 per cent recorded in the UK, economists surveyed by the European Central Bank expect euro-zone growth for 2006 to be only 2.2 per cent.

Private sector economists are falling into line with the UK central bank's new optimism.

The treasury's survey of 44 independent economic forecasts yesterday showed a rise in optimism about prospects for 2006, with forecasts increasing from 2.1 per cent in February to 2.5 per cent in August.

The economy would only have to grow by 0.5 per cent in the third and fourth quarters for the annual growth rate to hit 2.6 per cent.

The Bank of England expects the economy to power ahead at a rate of over 0.9 per cent in the third quarter alone.

Ben Broadbent of Goldman Sachs said: "With momentum in the economy and independent survey evidence pointing to a strong third quarter, it is highly likely growth will be higher than the treasury expects".

The renewed confidence came as the Bank of England published the minutes of the August monetary policy committee meeting, showing a 6-1 vote in favour of the quarter-point interest rate increase to 4.75 per cent.