Gordon Brown, the chancellor, will almost certainly upgrade his GDP forecast in the pre-budget report next month after strong third quarter GDP growth driven by business investment.
Mr Brown is expected to forecast 2.6 per cent for the year, compared to the previous estimate of 2 to 2.5 per cent. However, despite the expected revision, economists point to weakening consumer spending growth in the quarter, which is sure to hinder further growth rises.
The latest interest rise will add to the woes for consumers who are facing higher bills, higher taxes and higher debt servicing costs.
Anticipated modestly softer growth over the coming months, coupled with increased slack in the labour market, point to interest rates remaining at 5 per cent throughout next year.
However, if pay moves up, then interest rates could be raised to 5.25 per cent in the first quarter.