Weaker Domestic Demand Slows UK Growth


A sharp weakening in domestic demand led economic growth to slow at the end of last year, despite higher government spending and the biggest rise in inventories for 20 years, official data showed on Wednesday.

The Office for National Statistics left its estimate of fourth quarter GDP growth unchanged at 0.6 per cent, taking the annual growth rate down to 2.9 per cent - compared with growth of 3.1 per cent over the whole of 2007.

But economists said the details showed growth was not as solidly based as the headline figure suggested.

In particular, household spending growth slowed from 0.9 per cent in the third quarter to 0.2 per cent, the slowest in more than a year, and investment demand fell 0.5 per cent, well below expectations of a 0.4 per cent rise.

Inventory levels jumped by £3.1bn, the biggest quarterly increase since 1988, contributing about 0.2 percentage points to GDP growth. The contribution of net trade was due to a sharp fall in imports, outweighing a smaller decline in exports.

Bank of England policymakers have made it clear that the frequency of further interest rate cuts will depend on how the balance of risks between slowing growth and rising inflation develops.


TradingEconomics.com, Financial Times
2/27/2008 6:34:13 AM