Following the slowdown in activity in the first half of 2005, signs of a pick-up in momentum are emerging, and a strengthening in private consumption and investment is expected to take GDP growth to around 2½ per cent in 2006 and 3% in 2007. Headline inflation is projected to move slightly higher in the short term, in response to the recent spike in domestic gas prices; beyond that it should fall back below the 2% target, converging towards the rate of core inflation. Given the recent pick-up in inflation expectations, and the risk of spill-over of higher energy prices into core inflation, the OECD projections assume that policy interest rates remain unchanged. The general government deficit has now exceeded 3% of GDP for three years in a row, and is expected to narrow only very gradually over the forecast horizon; measures to achieve a more decisive reduction in the deficit may thus be required. Reforming the disability benefit scheme and improving workforce skills should remain priorities in order to raise potential growth.