Governor of the Bank of England Mervyn King has predicted a booming economy for Britain over the next two years, but warned that further interest rate rises may be needed to counter rising inflation.

A week after the Bank raised rates for the second time in four months, the new forecasts in its quarterly Inflation Report project growth in 2004 of 3.5 per cent, easing only a little to three per cent next year.

“Over recent months, growth has been strong. It is expected to remain so,” King said.

“There are already some signs of higher inflation to come... There is evidence of greater cost pressures in the pipeline.”