THE Confederation of British Industry has forecast a pick-up in economic growth by the end of the year and predicted interest rates would fall by a further half a percentage point.

Rates will fall to 4.75 per cent by the end of the year and stay at that level throughout the year 2000, the CBI said in its influential quarterly economic forecast.

It says the economy will gain pace during the sec-ond half of this year with a more balanced situation emerging in 2000.

People are becoming more confident about spending with the recent run of cuts to the cost of borrowing.

CBI economists upgraded their forecasts from the previous quarter to predict economic growth, measured by gross domestic product, would average 0.8 per cent this year and 2.1 per cent in 2000 - an upward revision of 0.3 per cent in both years.

Government spending, household consumption and private investment will see the domestic economy picking up by 2.2 per cent this year, but the slowdown in exports will pull the overall growth rate down.

Unemployment will rise, but less severely than the CBI forecast in February, with 1.86 million jobless by the end of the year and 1.89 million by the end of 2000.

However, Kate Barker, the CBI's chief economic advisor, cautioned that the forecasts depended on sterling falling from its current high levels, which are damaging Britain's manufacturing industry.

Looking forward to the next Bank of England meeting on interest rates, she said: "As the UK recovery remains fragile, an early quarter-point cut in interest rates would be fully justified. "Further reductions beyond that could become necessary if sterling fails to decline."

The report forecast Public Sector Net Cash Requirement will see a deficit of £5.8 billion in 1999-2000 and £6.6 billion in 2000-2001.

This is considered manageable at a time of economic downturn, even though it marks a significant decline on last year's PSNCR surplus of £7.3 billion.

Export volumes are expected to be weak in the first half of 1999 before recovering in the latter part of the year and in 2000.

Overall exports for this year will come in at 1.2 per cent down on last year before picking up next year to 3.1 per cent.

The 2000 export forecast marked a marginal reduction in the CBI's previous estimates.

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