Growth outlook getting brighter

CITY economists are revising upwards their forecasts for economic growth this year after last week's unexpectedly buoyant manufacturing output figures.

High-street spending and unemployment figures for March will be closely scrutinised this week for further evidence that Britain's economic recovery is gathering steam.

Factory output rose by 2.5 per cent between December and February, the sharpest two-month increase for five- and-a-half years.

Kevin Gardiner, an analyst at Warburg Securities, said the gathering signs of recovery justified increasing his forecast of growth this year from 1.5 to 1.7 per cent, and next year from 2.6 to 2.9 per cent.

The Treasury predicted in the Budget that growth would be 1.25 per cent this year, although some officials already believed the outturn could be significantly higher. The Chancellor was wary of hailing the manufacturing figures as decisive proof of recovery, but the Treasury believes next week's gross domestic product data will officially confirm that the revival got under way in the first three months of the year.

March retail sales figures, due on Friday, are forecast to show a flat picture on the month, following a 0.2 per cent rise in the previous month. As retail sales fell sharply in the same month last year, this would result in the year-on- year rate of increase rising from 2.4 to 3.5 per cent.

Unemployment figures for March are due on Thursday. No City analysts expect February's shock 22,000 fall to be repeated. On average, they expect a rise of 25,000, which would still suggest that the underlying increase is slowing down.

The broad measure of money supply M4 - cash plus bank and building society accounts - is expected to remain relatively depressed, with the annual rate of increase rising from 3.3 to 3.6 per cent, above the recently lowered 3 per cent floor of the Treasury's 'monitoring range'.