Europe's economy is accelerating out of its recent trough, according to new forecasts from Brussels, but stubborn inflation and high government borrowing could hasten an early interest rate rise in the eurozone.

Resurgent domestic demand should help to drive growth in the European Union from 1.5 per cent this year to 2.1 per cent in 2006 and 2.4 per cent in 2007, the European Commission said.