The CBI has revised upwards its forecast for economic growth this year.

Publishing its quarterly look-ahead, the business organisation predicted GDP growth of 3.2 per cent in 2004.

The figures will be welcomed by Gordon Brown.  In his March Budget statement the chancellor predicted that growth would be in the three to 3.5 per cent range this years.

The strongest spur to growth is expected to come from consumer spending, partly fuelled by rising house prices,

But, easing fears that the economy could remain unbalanced, a separate CBI survey found that the manufacturing recovery gathered momentum in May as demand from home and abroad pushed total order books up to a six-year high.

The CBI also cautioned that rising oil prices and financial market instability could still have a negative impact on the economy.

Interest rates

And there was a warning to the Bank of England that any sharp rises in interest rates would also be damaging.

"The recovery has gained a good deal of momentum," said CBI chief economic adviser Ian McCafferty.

"With consumer spending rising more strongly than expected, the housing market picking up again and the world recovery on course there is scope for solid economic growth in the UK over the next 18 months.

"But, at the same time, the outlook remains vulnerable to rising oil prices and potential financial market instability.

"Shock tactics on interest rates would add further uncertainty. The Bank of England should continue its gradualist approach in order to maintain a steady upswing."

More good news for the Treasury came with a prediction that government borrowing this financial year would reach £32.5 billion, marginally bellow the official forecast.

However, the CBI forecast for government borrowing in 2005/06 stands at £32 billion, £1 billion more than the Treasury is predicting.