Industrial production highest for three years

MANUFACTURERS boosted production in February more sharply than the City expected, raising hopes that the economy is in good shape to cope with the tax rises that have taken effect this week.

City economists concluded that the Chancellor would now be under less pressure to make an early cut in interest rates to offset the impact of the tax increases. The figures showed factory output rising by 0.6 per cent in February to its highest level in more than three and a half years, the second successive monthly increase.

The scope for another rate cut has already been limited by fears in the financial markets that inflation may begin to rise more quickly, triggered by rapid US economic growth.

Meanwhile, economists at the International Monetary Fund in Washington were reported yesterday to have cut their forecast of British economic growth this year from 2.8 per cent to 2.5. They are more pessimistic about growth in Europe than they were last autumn, but more optimistic about US growth.