Revised GDP figures continue to portray a solid economic recovery, with nominal demand growing above a rate likely to be compatible with the inflation target over the medium term.

• GDP grew by 2.7% in the year to the third quarter, revised down from 2.8%. Assuming, conservatively, a quarterly gain of 0.5% in the current quarter, full-year growth will be 1.7% versus a consensus forecast of 1.3% in December 2009.

• The official GDP series relies on output data; an expenditure-based estimate rose by 2.9% in the year to the third quarter (i.e. adding back the "statistical discrepancy").

• Encouragingly, annual growth in business investment was revised up substantially, from 4.6% to 8.9%, showing that spending is responding as expected to an earlier strong improvement in corporate liquidity – see first chart. Also, the household saving ratio rebounded from 3.5% to 5.0% in the third quarter, implying that consumers have more in reserve as high inflation and tax hikes constrain real income expansion. Stockbuilding, meanwhile, was modest last quarter, at 0.1% of GDP.

• Discouragingly, the previously-reported improvement in net exports in the third quarter has been revised away, dashing the MPC's hopes that "the necessary rebalancing towards net trade might have begun" (according to the December minutes).

• The annual increase in the GDP deflator at market prices was revised down from 3.0% to 2.4%, accounting for the bulk of a reduction in nominal GDP expansion from 5.9% to 5.1%. The latter figure, however, was depressed by a large rise in the trade deficit between the third quarters of 2009 and 2010, partly reflecting surging import costs. A more appropriate focus for the MPC is nominal domestic demand, which rose by an annual 6.8% (revised from 7.1%) – the fastest since 1999.

• Relative to the pre-recession peak, GDP is slightly ahead of the level at the corresponding stage of the early 1980s recovery, which followed a recession of comparable scale (slightly deeper if measured by GDP excluding North Sea oil and gas production) – second chart.

One of the many unfair criticisms of British banks is that they have failed to "pass on" official interest rate cuts, using wider margins to boost profits. Such claims are "supported" by reference to unusually-large spreads between lending rates and Bank rate – the average interest rate on the outstanding stock of bank and building society mortgages, for example, is currently 3.0 percentage points above the 0.5% Bank rate versus an average of 0.6 points over 2005-07, before the financial crisis.

Such statistics, however, are bogus because banks are unable to obtain marginal funding at Bank rate, or even at quoted short-term interbank rates in any size. A better guide to their cost of borrowing is the average interest rate on household time deposits – currently 2.6%. The spread of the average mortgage rate of 3.5% over the time deposit rate is 0.9 percentage points, below the 1.1 point average over 2005-07 – see chart.

Net interest income, in fact, suffers rather than benefits from low official rates, partly because banks are net lenders of funds at Bank rate as a result of QE – their cash reserves at the Bank of England now stand at £140 billion, or 3.7% of their sterling assets, versus about £20 billion before the crisis. The Bank, rather than commercial banks, is enjoying a major boost to its net income, with reserve liabilities earning Bank rate used to finance a gilt portfolio with an average running yield of about 4%.

The disconnect between Bank rate and banks' funding costs undermines another common claim – that lending rates would fully reflect any rise in official rates, resulting in a squeeze on borrowers' incomes that could abort the economic recovery. With the time deposit rate so far above Bank rate, it is much more likely that this spread – rather than lending rates – would take the strain in the initial stages of any policy tightening.

An increase in Bank rate, in other words, would help to bolster the Bank's inflation-fighting credentials and cap inflationary expectations without material damage to economic prospects.