UK Economy Grows at Slowest Pace in Three Years


The UK economy grew at its weakest pace in three years in the first quarter of 2008, thanks to a sharp drop in investment that offset surprisingly strong growth in household consumption, official data showed on Friday.

The Office for National Statistics left its initial estimate of quarter-on-quarter growth in gross domestic product unrevised at 0.4 per cent, down from 0.6 per cent the previous quarter, and taking the annual growth rate to 2.5 per cent.

The figures confirm the economy is now growing below its trend rate of expansion. But they are unlikely to change market expectations that the Bank of England will hold interest rates for the foreseeable future, since policymakers have signalled they think a period of below-trend growth necessary to bring inflation back to target.

The breakdown of expenditure data showed that a quarter-on-quarter fall of 1.6 per cent in investment spending acted as the biggest drag on growth, outweighing a strong recovery in household consumption.

Household expenditure, which grew only 0.1 per cent in the last quarter of 2007, rebounded to grow 1.3 per cent in the last quarter and 3 per cent year-on-year - largely due to the surprise surge in retail sales at the start of the year.

Many economists think consumers will be little support to growth over the coming months, arguing that other surveys suggest retailers are already suffering and that higher inflation and tougher credit conditions are bound to curb spending.

Net trade made a positive contribution to growth, with imports falling by 0.6 per cent quarter on quarter while exports remained stable.


TradingEconomics.com, Financial Times
5/23/2008 6:36:42 AM