The latest figures reveal the British economy to be doing much better than expected.

The latest gross domestic product figures for the third quarter of 2001 show the economy grew by 0.6 per cent in the three months to the end of September.

The stronger than expected growth rate, though a preliminary estimate, indicates the economy has strengthened since the previous quarter when the growth rate was 0.4 per cent.

The Office for National Statistics figures also show that year on year the economy grew at a rate of 2.2 per cent, down slightly on the 2.3 per cent growth rate indicated by the previous quarter's figures but still close to the economy's long term growth trend of 2.5 per cent.

The ONS says production industries saw a decline in output during the third quarter, with small declines in the manufacturing and energy supply sectors. Service industries are estimated to have continued to grow, though at a slower rate than the previous quarter.

The news will reduce pressure on the Bank of England to cut interest rates further when it meets next week.

The cheery figures are also in line with new forecasts from the National Institute of Economic and Social Research.

The National Institute Economic Review has predicted that the UK economy will grow by 2.3 per cent this year and 2.1 per cent in 2002, making it the fastest growing economy in the G7. Inflation is forecast to be slightly below the Bank of England's target of 2.5 per cent in the final quarter of 2001 and will fall further to 1.8 per cent by the end of 2002.

Rejecting the CBI's call for a half point cut in interest rates to protect business confidence, the NIER says there is no need for any further cuts in interest rates.

The forecasts also contain good news for Gordon Brown. Public finances are sufficiently robust for the government to continue to increase public spending at a real rate of 3.8 per cent a year until 2005/06, the NIER says.

And despite hints from Tony Blair that taxes may need to rise, the NIER says any tax increases would be "purely precautionary unless the chancellor wishes to deliver even higher expenditure than the departmental plans set out in the 2002 spending review".

The generally positive outlook for the British economy, however, is not mirrored in the other major global economies. America, Japan and Germany are all likely to be in recession over the next few months, the NIER predicts.

"The terrorist attacks in the United States have exacerbated an already serious setback to the world economy," says the NIER.