Weaker-than-expected UK economic growth figures have reduced the chances of an interest rate rise next month, economists say.

UK fourth-quarter preliminary GDP rose 0.5% on the quarter and 3.1% on the year compared with analysts' forecasts of 0.7% and 3.3% respectively.

In 1997 as a whole, the economy grew by 3.3%, compared with Treasury forecasts from November of 3.5%.

Economists say that these figures and weaker-than-expected retail sales data earlier this week suggest the odds are now against a base rate rise on February 5, when the Bank of England monetary policy committee next meets.

Deutsche Morgan Grenfell economist James Barty said: "If you were a dove on the Monetary Policy Committee this data is all the evidence you need to keep rates on hold."

However, he added that he did not believe that the data provided an accurate assessment of the UK economy's performance in the fourth quarter.

Mr Barty said survey evidence indicated that manufacturing output did not decline in the fourth quarter and said he was expecting the data to be revised up over the course of the next two months.

"In any case," he said, "we continue to believe that even if rates are left on hold at the February MPC, policy is likely to be tightened further in the current cycle".

Meanwhile, MPC member Deanne Julius has warned that the Asian crisis is likely to reduce UK GDP growth by 0.5% to 0.75%.

In a BBC Radio interview, she said: "When we do a model of the economy and try to forecast what effect the Asian turbulence will have, the overall impact looks like it is in the range of half a per cent to three quarters of a per cent of GDP."

But that would not risk pushing the economy into recession, she added.

She played down the threat of deflation, but stressed that the Bank was alert to its dangers.

"It is too early to declare that the battle against inflation is over and that now the chief enemy is deflation," she said.
 

Back to top | BBC News Home | BBC Homepage	©