Weak growth could hit Brown's forecasts

GORDON Brown's growth forecasts looked increasingly out of reach today after the Office for National Statistics revealed the economy expanded by less than previously thought in the first quarter of the year.

Gross domestic product (GDP) - a measure of overall economic activity - rose by 0.5% in the January to March period, down from an earlier estimate of 0.6% and the weakest for nearly two years, the ONS said.

An industrial slump was the main reason for the weakness, falling by 0.7%. However, household spending was also worryingly subdued, rising by just 0.3%. Business investment was flat, while exports were down.

Economists said the figures cast further doubt on the Chancellor's claims that the economy will grow by 3% to 3.5% this year. The Organisation for Economic Cooperation and Development said yesterday it believed GDP growth would be 2.4%.

'To hit Brown's forecast now, growth would have to average around 1% in the remaining three quarters, which looks very unlikely,' said Jonathan Loynes at Capital Economics. 'We continue to expect growth of around 2% this year, which means that taxes are going up and interest rates are coming down,' he added.

Richard Lambert, a member of the Bank of England's monetary policy committee, said the mood was more cautious than six to nine months ago. 'Within that, my impression is that house price inflation has slowed but the market is looking relatively stable, and may have picked up since Easter,' he told the Bristol Evening Post.