THE economy accelerated to its fastest pace for more than two years last quarter, dampening the likelihood of an interest rate cut next month.

The economy grew by 0.7 per cent from July to September, above the 0.6 per cent recorded in the previous quarter and at the top end of economists' expectations.

The rise - the strongest since the second quarter of 2000 - pushed growth up to 1.7 per cent over the same period the previous year.

The figures also showed a healthy rise from Britain's services sector.

However, economists said despite the jump the economy remained lacklustre and they were expecting the Chancellor Gordon Brown to revise down his growth estimates in next month's pre-Budget report.

Officially, the Government is predicting growth of 2 per cent to 2.5 per cent this year, but analysts expect this to be revised down to around 1.5 per cent.

Philip Shaw, economist at Investec, said: ''The increase during the period is slightly greater than the market expectations but one shouldn't get too excited, it is only the level of growth that the Government believes to be the long-term trend.''

He added: ''The Chancellor's growth forecasts this year look way out of line with recent developments in the economy.''

George Buckley, economist at Deutsche Bank, said: ''The figures are surprising - we had expected a lower level of growth in services.''

However, he added: ''I see a good chance of these figures being revised down. I am slightly dubious about whether the economy grew at or above trend in the third quarter.''

Economists said the figures dampened the immediate need for an interest rate cut - although analysts are still forecasting an easing of rates in the near future.

Interest rates have been held at a 38-year low of four per cent since November 2001 but economists are predicting the Bank of England's Monetary Policy Committee will soon move to lower the cost of borrowing to boost the economy, after subdued growth in the world economy and sliding equity markets have caused concerns about the outlook for growth.

Mr Buckley said he still expected to see a cut in interest rates before the end of the year.