Economic growth at slowest rate for a year

THE British economy is growing at its slowest rates in more than a year, figures show today. With a General Election less than two weeks away, the figures will make uncomfortable reading for Chancellor Gordon Brown.

The Office of National Statistics said gross domestic product grew by 0.6% during the first three months of 2005 as predicted by analysts. But the figure took the annual growth rate to 2.8%, its weakest level since the end of 2003.

Industrial production fell by 0.1% again, thanks partly to a sharp fall in electricity output as temperatures were warmer than usual at the start of the year. Agricultural output also fell sharply as did mining and quarrying.

Overall growth was driven by the service sector but even this slowed, expanding by 0.8% compared to 0.9% the previous quarter, its weakest in nearly two years. However, Government spending gave the economy a boost with related services growing 0.9%, up from 0.6% before.

Economists said the figures would have little impact on the next move for interest rates. 'Although growth slowed modestly, it was sufficiently close to trend to keep open the possibility of an interest rate hike in May,' said Howard Archer, economist at City research firm Global Insight.

'We still think that economic activity will hold up relatively well over the coming months, and that the Bank of England will lift interest rates by 25 basis points in the summer to counter the underlying inflationary pressures stemming from the lack of an output gap, tight labour market and high oil prices.'

The Bank's monetary policy committee, which has moved its meeting until Monday 10 May to avoid a clash with the General Election, will face mixed signals from data out this week. Pressures to raise rates came from mortgage figures suggesting the worst for the property market was over and from inflation hitting a seven-year high of 1.9% in March.

However, official figures showed retail sales took an unexpected dip last month, increasing calls to keep the base rate at 4.75%.