[The retail figure] takes some heat out of speculation that the Bank would need to raise interest rates quite soon

Geraldine Concagh economist AIB Group Treasury

"We appear to be seeing the first signs that the severe squeeze on manufacturing is starting to ease," said the Confederation of British Industry (CBI) economist Doug Ogden.

More manufacturers expect a rise in output from the recession hit sector over the next four months than those who fear output will fall, according to the CBI's monthly industrial trends survey for February.

But retailers are more gloomy after shoppers slowed down last month following a spending spree in December - though sales were still stronger than last year.

According to the latest numbers from the Office of National Statistics, UK retail spending fell 0.3% during January from the previous month.

Analysts had expected a rise of 0.4%.

Interest rates

"[The retail figure] takes some heat out of speculation that the Bank would need to raise interest rates quite soon," said AIB Group Treasury economist, Geraldine Concagh.

"Today's retail figures open the door slightly more ajar for an interest rate cut in the coming months," said British Chambers of Commerce chief economist, Ian Fletcher.

"It is far too early to say that the economy is faltering, but if the slowdown on the high street continues, then consumers might need a helpful nudge from the Bank of England."

For the year, retail sales rose 4.2% by volume when compared with January 2001, though the rise was slower than analysts' predictions of 5.6%.

By value, the rise was 6.4%.

Cautious optimism

Even the rise in optimism among manufacturers was downplayed by Mr Godden.

"It would be wrong to overstate the good news," he said.

"While this is the first time since last summer that manufacturers have not been expecting a fall in output, they are not expecting an increase either."

Scotland

Earlier this week, separate figures showed that Scotland's retail sector has continued to withstand the global economic downturn.

The Scottish Retail Consortium (SRC) statistics for January showed that sales north of the border grew by a record 9.6% from the same time last year.

And for the second consecutive month Scotland also outperformed the rest of the UK, which saw growth of 8.3%.