Purchasing managers' surveys this week showed that activity in the services sector grew at its fastest rate for over 16 years in October. With manufacturing also growing well - official figures show that output rose 1.2 per cent in September - economists believe the economy is expanding rapidly. James Knightley at ING says real GDP could rise by 1.5 per cent in the fourth quarter, which would be the biggest expansion since 1999.
But Bank of England governor Mark Carney is expected to use the publication of the Bank's Inflation Report next week to repeat his commitment not to raise Bank rate at least until the unemployment rate falls below 7 per cent; it is currently 7.7 per cent. In August, the Bank forecast that this would not happen until late 2016. Although economists expect the Bank to revise up its forecasts for economic activity and so bring forward the date at which it expects the jobless rate to hit 7 per cent, the Bank is unlikely to predict this happening before 2015.
There are justifications for the Bank's inactivity.
One is that it's unclear whether the current pace of expansion can last. Many economists fear that falling real wages and weak exports will cause growth to slow down next year.
Also, the level of economic activity is still low. Real GDP in the third quarter was 2.5 per cent below its pre-recession peak, while manufacturing output was 9 per cent off its peak.
In part because of this, most economists don't expect inflation to rise so much as to require the Bank to raise rates soon. It has said that its commitment to keeping rates low would be "knocked out" if inflation looks like exceeding 2.5 per cent in two years' time, or if inflation expectations "no longer remain sufficiently well anchored". But the Bank is expected to forecast inflation of around 2 per cent in two years' time on Wednesday, and while inflation expectations have risen recently, they are not yet alarmingly high. The five-year breakeven inflation rate in the gilt market is now 2.8 percentage points, compared to over 3 per cent in the spring.
Many economists therefore expect another year of ultra-low rates. But Mr Knightley says "rates could rise in early 2015".
