Interest rate cuts and investment in private finance initiative schemes have prompted the Building Material Producers to issue a more optimistic growth forecast than in December.

It expects construction output to pick up in the second half of 1999 and has forecast growth of 1.5% for the year (up 1% on its December forecast), 3% for 2000 and 3.5% for 2001.

BMP economic director Allan Wilén said: "Interest rate cuts to date and the prospect of further cuts will mean an improvement, especially in the housing market and new build.

"In December, housebuilders were relatively cautious and everyone was winding down their stocks. Since January, we have seen a marked improvement, especially in house sales, which will stimulate output for new-build housing." Construction growth in the private sector is expected to be worth £39bn this year, rising to nearly £40bn by the end of 2000. Wilén said: "The PFI has been a major engine in the commercial sector and we expect to see continued activity in the next three years." Public sector output of £33bn in 1999, growing to £35bn next year and more than £37bn in 2001, is also predicted.

Wilén said public sector housing had not seen expected growth in 1998/99 from capital receipts filtering through to local authorities.

He predicted that the money - £610m - would make an impact on the housing new-build and refurbishment sectors this year. This is expected to offset the 7% fall in the manufacturing sector.