THERE'S good news for business as the economy is set to continue its recovery over the next 18 months.

That was the message from leading economist Trevor Williams, as he spoke to Basingstoke business leaders at The ARK Conference Centre on Tuesday.

Mr Williams, the chief economist with Lloyds TSB's financial markets division, said the bank was predicting good times ahead until at least the end of 2005.

He said: "I looked back at a previous presentation and it looked pretty good then. The economy is looking brighter now and that's the main message I'm bringing here."

The seminar was attended by more than 100 members of the business community keen to learn from Mr Williams' insight into the global and UK economies.

Although interest rates are likely to continue to rise, eventually hitting a high of 5.5 per cent midway through 2005, Mr Williams does not believe it will have a significant impact on growth.

He said all the signs are showing the manufacturing sector will take over from consumer spending in leading the recovery. This means that although interest hikes will slow high street spending, the upturn in manufacturing will keep the recovery on course.

Better global markets will also help the UK economy, especially as export conditions favour UK manufacturers.

Investment in new plants and machinery is expected to be up and manufacturing output will be at its highest since 1997.

However, there were some darker predictions from Mr Williams. He warned that the increased cost of consumer borrowing could hit confidence and lead to the house price bubble bursting.

"House prices are slowing down and we do believe that they are overvalued at the moment. They will have to slow even further," he said.

However, he believes that even a drop of 30 per cent in house prices could be easily sustained and would not send the economy nose-diving into recession.

Wider issues such as a steep drop in the value of the dollar or continued oil price rises would have a bigger effect on the economy, according to Mr Williams.

However, markets around the world are picking up, with Europe - including the new members - the US and Asia all showing signs of continued growth.

Longer term, Mr Williams predicted the UK would be the strongest market in Europe, outperforming both Germany and France.

He added that sustained growth until 2030 could only be achieved with an immigration policy designed to attract the required workforce.