POLISH plumbers and other migrants from nations that joined the European Union last year have boosted the UK economy by keeping interest rates down, a report claims today.

The Ernst & Young Item Club, which uses the Treasury's model of the economy for its forecasts, said the cost of borrowing would be 5 per cent instead of the current mark of 4.5 per cent without the arrival of people willing to work.

It joins experts including Bank of England governor Mervyn King in concluding that immigration since 10 new countries joined the EU in May 2004 has been good for the UK economy.

In a speech in June, Mr King said migrant workers helped limit inflation by restraining wage growth at a time when unemployment was at a 30-year low.

According to the ITEM Club, migrants from countries such as Poland and Slovenia have plugged gaps in industries ranging from hospitality to catering.

Almost 300,000 immigrants have taken jobs in the UK in the past three years and have not isolated themselves to London, it found.

Professor Peter Spencer, chief economic advisor to the ITEM Club, said: "We are on the crest of a new immigration wave.

"The steady flow from the most recent accession countries to the UK has proved remarkably positive for the economy, keeping interest rates a half a percent lower than they would otherwise have been."

The UK is one of only three EU countries that allowed the free flow of labour following the expansion, and the ITEM Club expected economic growth to pick up to 2.6 per cent in 2007 and 3 per cent in 2008.

"Interest rates have stabilised at a historically low level and that has boosted consumer confidence and house prices," Mr Spencer said.

He noted that the housing market had been stronger than the Monetary Policy Committee (MPC) of the Bank of England had expected.

"Although the strength of the housing market has made the MPC reluctant to cut interest rates to stimulate demand, the buoyancy of house prices and transactions will support consumer spending" Mr Spencer added.