Britain's oilfields are in their healthiest state for two years thanks to soaring barrel prices and falling costs, economists said yesterday.

The price of oil rose by more than a quarter to $30.48 from May to June this year, according to the latest Royal Bank of Scotland Oil Index.

But the falling value of the pound against the dollar meant price rises were steeper still in the UK, where the cost of a barrel rose by a third to £20.13 in June, boosting oil revenues by 45 per cent.

Oil production also rose by nine per cent to 2.4 million barrels per day, partly due to the end of maintenance work on several oilfields.

The report showed the UK's Continental Shelf costs fell to $12 (about £8) a barrel in 1998, making North Sea oilfields more attractive to prospective drillers. The industry aims to cut these costs to $8 (£5.50) a barrel by 2002.

Stephen Boyle, head of business economics at the Royal Bank of Scotland, said: "For the first time in over two years there is genuine cause for optimism about prospects for the industry."

The bank's Gas Index showed output falling by 4.6 per cent during June, although production was up by a quarter on the same period last year.