A strong performance by banks and accountancy firms helped drive economic growth beyond City forecasts in the last three months of 2004 despite manufacturing’s fall back into recession.

The rate of expansion accelerated to 0.7 per in the quarter from 0.5 per cent in the previous three months, National Statistics said.

The figure beat City forecasts of a 0.6 per cent growth rate and took the economy’s annual rate of expansion to 3.1 per cent, above its long-term average.

The last-quarter revival was led by business and financial services companies, which achieved a 1.5 per cent rise in output. Architects, consulting engineers and accountants enjoyed a particularly busy quarter with "stronger growth" in computer services.

However, the report confirmed expectations that manufacturing had fallen back into recession, with output falling for a second successive quarter, although the rate of decline in output slowed to 0.2 per cent in the October-to-December period from 0.8 per cent the three months before.

Howard Archer, the Global Insight economist, said: "The impressive resilience of the service sector countered a disappointing return to technical recession in the industrial sector."

Retail growth also slackened, with electrical goods stores, which suffered shortages of games consoles, particularly effected.

Nonetheless, the data curbed hopes of a cut in interest rates.

"We continue to believe that the next move in interest rates is currently more likely to be up than down, although we expect the Bank of England to leave monetary policy unchanged for some time to come," Mr Archer said.

Expectations of a cut in borrowing costs were further trimmed by the Bank's release of the minutes of the meeting two weeks ago of its Monetary Policy Committee, which voted unanimously to leave rates at 4.75 per cent.

The minutes failed, unlike those for the MPC's November meeting, to refer to a rate reduction.

"The detail of the minutes point to a committee that is keen to head-off talk of a rate cut," Barclays Capital said.

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