Britain may have to raise interest rates to prevent the economy overheating, the European Commission warned yesterday. But its annual economic forecast painted a glowing picture of Britain's prospects, with accelerating growth, low inflation and falling unemployment.

The Commission report treads a cautious line between the two stating that the inflation target is achievable" by the election.

"Nevertheless, stronger economic activity thank forecast, spurred by more buoyant domestic demand, could possibly put upward pressure on inflation. This may require a tightening of monetary policy," it adds.