The International Monetary Fund last night praised Britain's recent economic record as "enviable" but warned of the danger posed by a possible housing market crash.
In its annual comment on the British economy, the IMF said it saw the need for more rate rises and a real threat Chancellor of the Exchequer Gordon Brown could bust his own fiscal rules.
"A gradual but early tightening of monetary policy is the best means for achieving a soft landing in consumption and the housing market," the Washington-based IMF said in its report.
The IMF said it saw the UK economy growing at a similar rate in 2003 and 2004 to that projected by Mr Brown last week. But the lending agency said it was less sanguine about the prospects further ahead.
Mr Brown saw growth of 2.1 per cent this year and 3 to 3.5 per cent in 2004 and 2005. The IMF sees growth of 3 per cent next year before settling down to about 2.5 per cent in 2005.
"The main risk relates to an abrupt adjustment of house prices and household balance sheets, with possibly protracted effects on consumption," the IMF said. "But assessing the likelihood of such a hard landing scenario is difficult."