The Office for National Statistics said growth in gross domestic product eased from 0.6 per cent in the last quarter of 2007 to 0.4 per cent in the first quarter of 2008, in line with analysts’ average forecasts. The annual rate of growth edged down from 2.8 per cent to 2.5 per cent.
The figures are unlikely to change expectations that the Bank of England will cut rates gradually after seeing further evidence of a slowdown, since policymakers have emphasised that a period of growth below trend is needed to bring inflation back to target.
The credit crunch is clearly taking its toll on the service sector that drives the UK economy. Growth in business services and finance, representing 28 per cent of the economy, slipped from 0.6 per cent to 0.4 per cent, the lowest since 2003.
Growth of 0.5 per cent in the construction industry was less than half the rate of the previous quarter, although the ONS warned its first estimate for this sector was especially prone to revision.
The biggest surprise of recent months has been the strength of retail spending, which pushed output from distribution, hotels and restaurants up 0.9 per cent after a muted rise of 0.2 per cent in the last quarter of 2007.
But since ONS data earlier this week showed retail sales growth was much stronger, Richard McGuire at RBC Capital Markets noted we can infer a poor performance on the part of non-retail services.”
Output in the production industries fell 0.1 per cent on the quarter, but this was largely due to lower oil extraction. Manufacturing output jumped 0.5 per cent after stagnating the previous quarter, perhaps reflecting a boost from the weak pound.