A last-minute dent to hopes of an interest rate cut today was delivered by much stronger than expected news from British manufacturing yesterday, showing industry holding up in the face of difficult economic conditions.

Manufacturing output grew 1.9per cent year on year, the highest annual growth since 2006, although analysts gave warning that the figure was slightly inflated because of a sharp fall in manufacturing in February of last year.

Total industrial output grew 0.3per cent, after falling 0.1per cent in January, as companies take advantage of the weakness of the pound. Yesterday it reached a record low of 80p against the euro.

The upbeat news from manufacturing chimes with other recent better than expected figures from the high street and employment, which emphasised what Mervyn King, the Governor of the Bank of England, last month called the “surprising” resilience of the UK economy.

However, most city economists still expect the Bank's Monetary Policy Committee to cut rates by a quarter-point.

Howard Archer, of Global Insight, an economic consultancy, said: “Healthy manufacturing output in February won't prevent the Bank from cutting interest rates from 5.25 per cent to 5 per cent given the heightened downside risks to the growth outlook stemming from markedly tighter credit conditions and high market interest rates.”

Jeegar Kakkad, senior economist at EEF, the manufacturing body, said: “Manufacturers are continuing to defy the economic gloom by reaping the rewards of investment and growing world markets.

Having taken tough decisions to improve performance and competitiveness, we cannot afford to let the problems in the financial sector spill over into the wider economy where the economic fundamentals remain sound.”

This came as it emerged that British shop price inflation eased slightly in March with the cost of food failing to rise for the first time since last August. Shop prices rose by 0.2 per cent in March, down from a 0.4 per cent rise in February, figures from the British Retail Consortium (BRC) showed.

The annual rate also declined, from 1.3 per cent in the previous month to 1.1 per cent in the 12 months to March.

Although this is good news for consumers, the BRC said that the increased cost of raw materials and weaker demand was putting more pressure on retailers, and called for the Bank to cut interest rates today.

Stephen Robertson, director-general of the BRC, said: “With customers' finances under real strain, retailers recognise value is crucial. They've cut many prices and overall annual shop price inflation has fallen back to levels not seen since November.”

Economists said that pressure on retailers could intensify in coming months. Mr Archer said: “We expect muted consumer spending to significantly dilute retailers' pricing power.”

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive