Britain's economy is now set to grow by 2.5 per cent this year, then to quicken slightly to 2.7 per cent, while inflation remains somewhat above Gordon Brown's two per cent target, rising to 2.3 per cent towards the end of 2007.
These key forecasts from the independent National Institute of Economic and Social Research contain no specific prediction for interest rates, but carry the implication that the Bank of England will have to raise the cost of borrowing to keep price rises closer to the target towards the end of its two-year time scale.
The NIESR estimates that "there is hardly any spare capacity in the economy", but that the resulting inflationary pressure will be offset to some extent by other factors.
The recent strength of the pound should blunt the impact of dearer oil and the switch from falling prices of non-oil imports to rising import prices.
"Consumer price inflation will also be tempered by subdued pay pressures," the NIESR suggests in it latest quarterly review.
"One reason is the big increase in immigration from eastern Europe, which is raising the supply of labour.
"Another is that employers are having to pump big amounts into their pension funds. These payments together with higher National Insurance contributions have risen from 13.0 per cent of total labour costs in 2001 to 17.1 per cent in the first quarter of 2006.
"Companies will seek to shift this rise in their non-wage labour costs to their employees by offering less generous pay settlements."
Although the public finances are looking healthier, the NIESR still expects Mr Brown to fail - though only narrowly - his own "golden rule" to borrow only to invest over the economic cycle from 1997/98 to 2008/9.
Across the wider world, the NIESR has revised its forecast for this year's growth upwards to 5.1 per cent from 4.8 per cent in April. It still looks for a slowdown next year, but to 4.7 per cent against 4.5 per cent as last forecast.
Oil will continue to drive global inflation, but the impact of a rising oil price on inflation and output is now more muted than in the past.
The US economy is set to expand by three per cent both this year and next, the NIESR adds, outpacing two per cent in the eurozone, again for both years. It expects European inflation of about 2.5 per cent for both years.