THE Bank of England has been warned that recession-hit manufacturers are not yet "out of the woods" as pressure for an early interest rate hike intensified.

The CBI said that while the long-awaited manufacturing recovery was on course the revival was taking longer than many firms had hoped.

Expectations of a sharp jump in output had now been scaled back and the CBI has lowered its GDP forecast for this year by 0.1 per cent to 1.7 per cent.

Ian McCafferty, the CBI's chief economic adviser, said: "It is too early to say that the manufacturing sector is already out of the woods.

"It has turned the corner but recovery will be a long and drawn out process and is certainly not assured. Policy makers need to be alive to this."

The warning comes after official figures revealed a huge jump in retail sales last month, reflecting the two-speed nature of the UK economy.

Sales volumes in April were a massive 1.7 per cent ahead of the previous month, and 6.9 per cent up on a year ago, leading many analysts to believe an interest rate rise may be imminent.

HSBC economist John Butler said hopes that the consumer boom would slow of its own accord had been "blown out of the water" by the retail figures.

"If evidence was ever needed that rates should rise this is it. If the price of supporting GDP growth now is to create a bigger problem later, then that price is no longer worth supporting."

The CBI said it believed household spending would slow in the second half of the year, helping to rebalance the two-speed economy.

Global growth should boost exports, it added, with the increase in export volumes forecast to rise from an average of 0.1 per cent this year to 4.7 per cent in 2003.

The CBI's latest industrial trends survey showed export orders edged up for the sixth consecutive month in April.

But it said that global uncertainties had led many firms to cut back their expectations of output growth for the coming months.

Of the 1,050 companies surveyed by the CBI, 28 per cent said they expected output volumes to grow, with 24 per cent forecasting a decline.