Kenneth Clarke said that yesterday's figures "show that this time we have healthy growth which is not running into the balance of payments problems which caused past booms to turn into bust".
City experts welcomed the unexpected good news on the trade front, but warned that the strong pound and booming demand meant Britain would go back into the red this year.
"If it lasted we could all feel a lot more optimistic about longer-term prospects for the British economy. But I would still be very wary about the balance of payments outlook," said Kevin Gardiner, an economist at the investment bank Morgan Stanley.
Recent figures have pointed to an economy expanding faster than its long- run trend. In a rare display of unanimity, almost all City economists think interest rates will have to increase shortly after the election, especially if the US Federal Reserve raises rates across the Atlantic today.
Official statistics showed that a record surplus on "invisibles" - services, investment income and transfer payments - offset an increased deficit on trade in goods last year. The overall 1996 shortfall of pounds 14m was the best performance since the oil-related balance of payments surpluses of the early 1980s.
Trade in invisibles was in surplus by a record pounds 12.2bn. The balance on services was little changed, with financial and business services the main surplus industries and travel, transport and aviation in deficit.
Business services provided the main improvement, up by pounds 1.2bn to a surplus of pounds 7.9bn.
Net income from British investments overseas surged, reflecting substantial profits. The value of new British investment abroad was about twice the value of foreign investment in the UK in 1995, the last year for which full figures are available.
Net direct investment earnings climbed to pounds 13.7bn in 1996 from pounds 11.6bn the previous year. Net income from portfolio investment in shares and bonds increased from pounds 3bn to pounds 4.3bn.
However, trade in goods was in the red by pounds 12.3bn last year, although the deficit narrowed slightly in the final quarter of the year thanks to lower import prices. A rising exchange rate tends to boost trade figures in the short run by making imports cheaper and exports dearer in sterling terms before the damage is done to export volumes.
John O'Sullivan at NatWest Markets said: "A strong pound and rising consumer demand should tip the UK back into deficit in 1997, but the erosion will occur from a relatively healthy starting point."
Separate figures yesterday showed that the economy had expanded by 0.8 per cent in the final quarter of last year, as originally estimated. Annual growth rate was nudged down to 2.6 per cent, above the long-run trend.
The new estimates showed a revised composition of growth, with much less of an addition to stocks than the statisticians had first thought. Consumer spending was unrevised, while estimated investment spending was revised sharply higher.
"This will renew hopes that the long-awaited recovery in investment is finally upon us," said Jonathan Loynes, UK economist at HSBC Markets.
Although the pound rose slightly yesterday against both the dollar and German mark, share prices fell. Despite a steady opening on Wall Street, the FTSE 100 index closed just off its intraday low, ending 40 points down at 4,214.8.
The pound gained two pfennigs, reaching DM2.7218. It rose by a cent to $1.6135.Reuse content