THE rate of overall economic growth across the South East has remained sluggish but consumer demand and a strong construction sector are helping to keep recession at bay, according to a report.

The latest PricewaterhouseCoopers UK Economic Outlook reveals that while the region's construction sector showed strong growth, manufacturing output continues to decline and 2002 is likely to see fairly modest growth.

The report also shows that the events of September 11 and the subsequent decline in consumer confidence had a particularly detrimental effect on the airline travel industry but the Christmas period demonstrated some return in confidence amongst travellers.

The poor performance of the railways also impacted on the ability of some companies staff to work as productively, which together with a shortage of qualified staff in some industries, may contribute to constraining growth.

Jon Wright, senior partner with PricewaterhouseCoopers, Maidstone, said: "Although the economic slowdown has been tough on industry in the South East, especially for manufacturing and marketing services, innovation and continued investment has helped to buoy the region's economic prospects. As well as the strong construction sector, infrastructure developments such as the Channel Tunnel Rail Link could help to boost the region's growth in the long term."

The report suggests there is no immediate need to increase interest rates, but they may need to rise to five or 5.5 per cent by the end of 2003 to prevent overheating of the economy.