The economy is set to make a strong recovery even though consumer spending will slow, a leading think-tank has forecast.

Improving conditions in the manufacturing sector were bolstering the economy, said the National Institute of Economic and Social Research (NIESR).

It said: "A strong recovery is under way as exports and manufacturing output pick up from the low levels reached at the start of the year."

Manufacturing output was forecast to rise by 2.5 per cent next year following a 2.7 per cent slide this year.

Public spending was also expected to boost the economy and NIESR believes Government expenditure will add 1.2 per cent to GDP this year.

The think-tank also forecast a slowdown in the consumer spending boom, which has so far protected the economy from the worst of the global slump.

It said Chancellor Gordon Brown's plans required tax increases of £6 billion by 2006 and up to £15 billion long-term, while household expenditure was forecast to rise by 2.7 per cent this year against annual growth of 4.6 per cent between 1998 and 2001.

But, despite this, the economy was still expected to grow at a rate of about 2.5 per cent by the end of the year.

Next year, the recovery will then strengthen further, with GDP rising to 2.7 per cent. NIESR was less positive for the world economy.

It said falls on global markets would dampen growth next year, particularly in the United States, where households tended to have more of their wealth tied up on the stock markets.

The UK is expected to survive weaker conditions elsewhere in the world, however, mainly because of the low value of the pound.