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Last Updated: Friday, 23 April, 2004, 10:23 GMT 11:23 UK
UK economy still roaring ahead
Gordon Brown
Mr Brown is hoping for strong growth this year
The UK economy is gathering pace, and looks set for a robust performance this year, output figures have shown.

Preliminary gross domestic product (GDP) estimates show the economy growing at an annual 3% in the first three months of 2004.

Although this is slower than some forecasts, it leaves the economy poised to meet the Treasury growth forecast of 3-3.5% for the year as a whole.

And this makes a further rate rise next month ever more likely.

Rates to rise?

The Bank of England is reckoned likely to raise interest rates again next month from 4% to 4.25%.

The Bank has already signalled by its last two rate rises that it believes the UK economy is growing too fast to keep inflation in check.

Many analysts now expect a further increase in the cost of borrowing early in the new year, with the markets expecting rates to reach at least 5% by the end of the year.

However, the Bank had forecast that the economy would grow by 1.1% this quarter, compared to its actual growth of 0.6%.

According to Alan Castle of Lehman Brothers, "the Bank of England is likely to play down the big downside surprise" and rase rates again, because other, more recent data is showing strong growth.

Fresh evidence for that view was provided by the retail sales for March: figures released on Friday show High Street turnover rising at an annual 6.4%.

This has led to concerns of overheating, and worries about the runaway growth of personal debt.

But in the short term, the news is a boost to Chancellor Gordon Brown, not least because value-added tax receipts will be buoyed.

General economic optimism leaves the government on course to plan for a General Election within the next year.

Quarterly growth

The preliminary GDP figures for the three months between January and March show that the economy grew at 0.6%, 0.1% slower than expected and below the 0.9% recorded in the last quarter of 2003.

The slower growth was due to weakness in the manufacturing sector, which declined by 0.5% in the quarter.

"The figures are on the low side of expectations and disappointingly so," said Investec Securities economist Philip Shaw.

On an annualised basis, the economy grew at a rate of 2.4%, just slightly above last year's 2.3%.

Most independent forecasters, including the IMF and the OECD, believe that economic growth in the UK will continue to accelerate on the back of the recovery in the world economy and the stimulus provided by the Budget deficit.

The consensus of independent forecasts compiled by the Treasury predicts that the UK economy will grow by 3.1% in 2004, while the IMF has raised its forecast to 3.5%.

However, the IMF also warned that the UK housing market was in danger of overheating, and that a sharp collapse in house prices if it were to happen would depresss growth.

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