Despite a solid UK economic performance over the last year, Bradford's business leaders should exercise caution, a chief economist has warned.

Speaking at The Hanover Hotel, Bradford, Jeremy Peat, group chief economist at The Royal Bank of Scotland, told delegates that poor US economic performance had caused problems across the globe but the UK's performance held up.

"The Iraq situation does present problems and may lead to ramifications across the Middle East which could lead to oil price rises and trade difficulties," he said.

Speaking to 100 business leaders yesterday, Mr Peat, who is also a columnist for the Telegraph & Argus, predicted a cut in interest rates in May.

He said "external shocks", such as September 11 and the Enron and WorldCom scandals had rocked the US, but he added: "The UK economy has performed relatively well considering these problems."

Mr Peat added: "Manufacturing order books seem to be holding up well despite significant problems in the sector as a whole, while the export markets are stronger than implied by the overall UK picture."

Talking about the global climate, he said: "The world economy is facing major challenges at the present time and the outlook is filled with even more uncertainty than has applied over the past couple of years.

"We remain reliant upon the US recovery to provide the impetus for a return to world growth in the latter part of 2003. "Despite the weak external environment, the UK economy has continued to perform relatively well, thanks to buoyant domestic demand, which has underpinned the economy's recent performance.

"Low interest rates have stimulated the consumer sector, directly and via an exceptionally buoyant housing market; while increases in public expenditure have also helped to maintain domestic momentum."

Mr Peat said the UK economy had held up well despite the US recession in 2001, the impact of September 11, the collapse in world trade, the turmoil in equity markets and the continuing conflict in Iraq. He added: "Looking ahead, provided geopolitical uncertainties are not unduly extended, we expect the UK economy to continue to grow at a slightly below trend rate in 2003, before returning to trend in 2004. However, there remain a variety of marked downside risks - economic, political and market-related.

The conference was part of a tour across the north which has already seen Mr Peat speak to business leaders in Leeds. Mr Peat is pictured, centre, with Adrian Fern, left and Doug Mowat of the Royal Bank of Scotland