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UK growth slows to 3-year low

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Date: Friday 25 Apr 2008

LONDON (ShareCast) - UK growth slowed to a three-year low in the first quarter of 2008 as the credit crunch proved a drag on the financial services sector.

The economy grew just 0.4% in the first three months of the year, down on the 0.6% reported for the previous quarter, but in line with most economists’ expectations.

The Office for National Statistics numbers represent the slowest quarter-on-quarter growth since the start of 2005 and now reside below the long-term average, estimated at 0.6-0.7%.

Annual growth dropped to 2.5%, less than the 2.8% reported for the quarter before and weaker than the 2.6% experts had predicted.

Growth in total services output fell to 0.6% from 0.7% in the fourth quarter, with business services and finance contributing most to the slowdown, falling from 0.6% to 0.4%, almost a five-year low.

The data could prompt the Bank of England, which has lowered interest rates three times in the last five months, to cut borrowing costs again in May, reckon analysts.

The central bank's Monetary Policy Committee voted just 6-3 in favour of cutting rates by a quarter-point this month, minutes from its meeting two weeks ago revealed Wednesday.

Six committee members, including Bank governor Mervyn King, voted for a drop to 5%, while David Blanchflower called for a bigger cut and Andrew Sentance and Timothy Besley wanted no change due to inflation pressure from soaring oil costs.

Yesterday’s mixed retail sales data had appeared to convince analysts that rates would not fall again next time. Sales tumbled at their fastest rate since the start of 2007 in March, but rose during the first quarter.