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Last Updated: Thursday, 30 June, 2005, 12:59 GMT 13:59 UK
UK economic growth revised lower
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An abrupt slowdown in consumer spending meant the UK economy grew by just 0.4% in the first three months of the year, slower than previously thought.

The Office for National Statistics (ONS) revised the figure down from an earlier estimate of 0.5%.

The ONS also revised the annual growth rate from 2.7% to 2.1% - the slowest figure for more than two years - as it revised past growth data upwards.

The figures could raise pressure for an early interest rate cut, analysts said.

Household spending grew by just 0.1% in the quarter, the weakest rate since the end of 2000. The ONS data also showed manufacturing output fell by 0.9%

'Alarm bells'

UK growth is disappearing in a puff of smoke
David Brown, Bear Stearns International

The Bank of England's monetary policy committee (MPC) meets next week for its latest rate-setting meeting.

"The MPC's previous GDP growth forecast of 2.6% odd this year now looks way too high and even our own of 2% may now be too hopeful," said Jonathan Loynes at Capital Economics.

Economists said the weaker-than-expected data would raise the pressure on the MPC to take swift action on rates.

"Judging by the latest UK Q1 GDP revisions, UK growth is disappearing in a puff of smoke," said David Brown, an economist at Bear Stearns International.

"The alarm bells must be going off in the Bank of England to cut a lot sooner rather than later. The markets should be on call now for the first rate cut coming as early as next week's MPC meeting."

Gerrard chief economist Simon Rubenstein said that the Bank of England is likely to have to revise its growth projections downwards.

UK Chancellor Gordon Brown has forecast growth of between 3% and 3.5% this year, forecasts which Mr Rubenstein believes he may now have to revise.

"As for the chancellor's forecasts, the time for eating humble pie is approaching," said Mr Rubenstein.

Historic rises

While the ONS cut its growth readings for this year, it raised its estimates of historic growth levels.

Growth in 2004 was revised up from 3.1% to 3.2%, for 2003 it was lifted from 2.2% to 2.5%, and 2002's figure was increased from 1.8% to 2%.

Meanwhile, the UK's current account deficit widened in the first quarter of 2005.

The ONS said the current gap grew to 5.8bn from 4.1bn in the fourth quarter, less than analysts' predictions of 6.8bn.




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