In the City, the pound was broadly unchanged, while the FTSE index of leading shares closed down 21 points.

Dealers said that the government's surprise forecast of a budget surplus next year helped lift shares off their lows.

And government gilts - which are sold to raise money to pay government debts - strengthened even more after the government announced it was cancelling its debt auction for March.

City questions forecast

Many City economists thought that the government had erred on the side of optimism in its economic forecast.

Marion Bell, Treasury Economist at the Royal Bank of Scotland, said that the government was being particularly optimistic about the bounce-back of the economy from the slowdown next year.

She added that the government's optimism also depended on its expectation that the Bank of England would cut interest rates substantially.

Stuart Wetherby, UK economist with Panmure Gordon, said:

"I was disappointed with the growth forecast because I think they are still too high. I had also hoped that Brown would broaden the inflation target to include other variables like growth and employment."

Adair Turner, Director-General of the CBI, said:

"The growth forecasts are probably on the high side, but we believe public finances are in a robust enough state to take a significant undershoot without unacceptable levels of borrowing."

Industry pleased

British industry was generally pleased with the government's new measures to support investment and innovation.

The CBI said it was particularly encouraged by the moves to create the right environment for innovation and growth for small firms.

Richard Parham, Managing Director of Peugeot UK said he welcomed the government's commitment to long-term growth. Although he expected growth to slow, the sound economic environment had enabled his firm to continue to invest.

Trevor Power of London Taxis in Coventry said he supported the governments moves to encourage greater employee share ownership.

"Any move to involve workers in business is welcome," he commented.

And small business organisations welcomed the review of banking.

The Federation of Small Businesses, which represents 122,000 small companies said the Mr Brown's speech was encouraging.

David Hands, a federation spokesman, said: "A review of banking practices is encouraging because some banks still feel that small firms are the ones most likely to fail."

Dr Ian Peters, Deputy Director General of the British Chambers of Commerce (BCC) said:

"We welcome the package of measures to encourage productivity and promote investment particularly in smaller companies and in research and development.

"However, the acid test for business will be whether the Chancellor's forecasts for growth and borrowing are realistic and achievable."

Waiting for the Bank of England

Now hopes will be focused on the Bank of England which meets on Wednesday and Thursday to decide interest rates.

Many analysts are expecting an interest rate cut of at least 0.5% to help stimulate the economy.

That is also the view of industry.

With manufacturing industry, at least, anticipating a deep recession, the CBI has already asked for bigger cuts in interest rates.

And today other industry bodies added their voice.

The British Chambers of Commerce said:

"We now look for the Bank of England to support the Chancellor's good intention by reducing interest rates by 0.5% this Thursday."