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EDITIONS
Friday, 28 June, 2002, 09:27 GMT 10:27 UK
UK economy barely growing
Customers outside a pub
Spending in the services sector is slowing
The UK economy was barely growing during the first three months of the year, according to new figures from the Office for National Statistics (ONS).


(The economy) still looks slightly weak and the services sector growth, in particular, is weaker than survey evidence would suggest

David Page, Investec
The ONS said UK gross domestic product (GDP) was up just 0.1% in the January to March period, and had risen by 1.1% over the year as a whole.

Growth in the last three months of 2001 was also revised up to 0.1%.

It had previously said that GDP was flat in the first quarter, after also recording zero growth in the last three months of 2001.

The revision means the economy is not officially in recession, but it has recorded its lowest growth for two successive quarters since 1991.

The upwards revision was mainly driven by the construction sector and the booming housing market.

Construction spending rose 3% in the quarter, while agricultural spending was also up for the first time in six quarters.

But manufacturing output was down for the fifth quarter in a row, by 1.1%, while the service sector could only manage growth of 0.2%.

Advertising, security, legal, accountancy, recruitment, architecture and engineering services showed particularly marked declines.

The figures take some pressure off the Bank of England to raise interest rates when it meets next week.

Mixed signals

The Bank , which has been considering raising interest rates to curb the housing boom, had previously said that it was surprised by the low GDP growth and expected it to be revised upwards.

Recent signals suggest that parts of the UK economy are beginning to grow strongly, led by consumer spending and cheap borrowing.

But the figures show that manufacturing and even parts of the service sector still remain depressed.

"(The economy) still looks slightly weak and the services sector growth, in particular, is weaker than survey evidence would suggest," said David Page of Investec.

Most economists now expect the Bank of England to delay any rate increases from the current level of 4.0% until August.

"It is pretty clear that most members on the MPC are not in a hurry to raise rates with current levels of inflation so low," said Stuart Edwards of S&P MMS.

The low growth will also make the Treasury's task more difficult, as it struggles to raise the funds needed for the big expansion of public services planned by the Chancellor.

Gordon Brown has predicted UK growth of 2-2.5% during 2002.

The economy will now have to recover strongly in the second half of the year to meet that target.

Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
See also:

23 May 02 | Business
10 May 02 | Business
01 May 02 | Business
27 Jun 02 | Business
26 Jun 02 | Business
28 Jun 02 | Business
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