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Last Updated: Monday, 5 March 2007, 18:53 GMT
IMF upbeat on UK economic growth
Chancellor Gordon Brown
Chancellor Gordon Brown will deliver the budget later this month
The UK economy will grow by 2.9% this year, the International Monetary Fund (IMF) has forecast.

Describing Britain's economic performance as "impressive", the IMF said it was revising up its 2007 growth projection for the UK from 2.75%.

However, the Washington DC-based institution warned that UK interest rates may have to rise further if wage settlements are not kept under control.

The Bank of England last raised rates to 5.25% in January.

The shock quarter-point increase was made in an attempt to curb inflation, which had hit an 11-year high of 3% the month before.

Although Britain's key consumer prices inflation rate eased to 2.7% in February, many analysts believe a further rise in interest rates to 5.5% could be on the cards within the coming months.

Wage restraint

The IMF's positive outlook for Britain's economy will come as welcome news for Chancellor Gordon Brown ahead of the budget later this month.

Mr Brown, who is widely expected to take over from Prime Minister Tony Blair in the summer, last week imposed a tough pay settlement on public sector workers, with average pay increases rising by just 1.9%.

"Continuing to communicate the importance of wage restraint will help minimise the need for additional increases in interest rates," the IMF said.

"Depending on evolving prospects for wage growth, some further tightening of monetary policy may be required."

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