The UK economy continues to exhibit greater resilience than most other OECD countries. Growth, led by private and public consumption, has remained close to potential, while inflation and unemployment are internationally low. The recent pick-up in activity should lead to above trend growth in 2004-05, with a more balanced expenditure composition, providing instability stemming from the housing market can be avoided. A gradual continuation of the recent tightening of monetary policy will be needed to ensure consistency with the inflation target and would also reduce the risk of another surge in house prices. The public sector deficit has widened considerably and, though arguably still consistent with the “golden rule”, may call for a slowdown in spending or a rise in taxes during the current upswing to avoid a destabilising adjustment later on...