The Paris-based Organisation for Economic Cooperation and Development's latest assessment of the British economy makes grim reading for the chancellor.

The economic think tank says there will have to be three increases in borrowing costs next year, despite a lull in the property boom.

The OECD also said action would be needed to plug a gap in the government's finances.

"The slowdown and continuing low inflation warrant a pause in monetary tightening, although further tightening may be needed during 2005, in particular due to increasing pressures from the labour market," it said.

Meanwhile, the governor of the Bank of England, Mervyn King, urged Gordon Brown, ahead of tomorrow's pre-Budget report, to ensure he meets his self-imposed tax and spending rules.

"It is not an option or an extra, it is an integral part of the macroeconomic policy framework and I am sure the chancellor agrees with that," King said.

A Treasury spokesman said the chancellor did concur, adding: "We are meeting our fiscal rules across this cycle, as we will across the next, and all our spending plans, set out to 2008, are fully affordable. We will set out new fiscal forecasts on Thursday."