The euro zone should cut interest rates to boost lacklustre growth but countries such as the United States and Britain should raise the cost of borrowing to prevent their economies overheating, the Organisation for Economic Co-operation and Development (OECD) said yesterday.

The thinktank used its twice-yearly report on the global economy to urge the European Central Bank to lop half a point off interest rates in the 12-nation bloc, taking them to 1.5 per cent.

"Our rationale for this is that there is price stability, in fact decelerating inflation, while economic activity is hesitant.

A cut in interest rates would underpin the recovery," said the OECD's chief economist Mr Jean-Philippe Cotis.

The organisation forecasts average growth for its 35 members of a healthy 3.4 per cent this year and 3.3 per cent in 2005 but predicted the euro zone would only grow 1.6 per cent this year, even if the ECB cuts rates to 1.5 per cent.

"Anaemic growth in the largest euro area countries - especially in Germany and Italy - has remained a cause for disappointment," it said, urging euro zone governments to get their budget deficits in order and push through structural reforms to get their economies growing again.

By contrast, it noted, the global economic recovery was being led, as usual, by the US which it saw growing by 4.7 per cent this year.

Mr Cotis said the recent rapid growth in employment, shown particularly by last Friday's non-farm payrolls data, meant the "jobless recovery is now over".

As a result the Federal Reserve needed to end its period of ultra-cheap money, raising rates from their 1958 low of 1 per cent as soon as next month, he said.

The Fed, meeting last week, said the risks to inflation were now balanced and that rates would have to rise at some point.

Most analysts are pencilling in a rise in August but Mr Cotis said June would be better.

"For the US the main risk is that macroeconomic policies remain too expansionary too long during the upswing," he said, adding that he thought rates would have to go to 4 per cent to no longer boost the economy.