Gordon Brown has signalled that the economy appears to have bounced back following signs of a slowdown in the wake of September 11.

Setting out optimistic forecasts for economic performance, the chancellor said growth would be higher than predicted next year.

He said the economy will expand by between three to 3.5 per cent - up by a quarter of a per cent over his earlier prediction and significantly higher than City growth forecasts.

Brown forecast that the economy would continue to flourish into 2004 - predicting it would grow by 2.5 to three per cent.

The chancellor told MPs: "Britain will achieve growth from two to 2.5 percent this year - then rising in 2003 to three to 3.5 per cent with growth in 2004 from 2.5 to three per cent."