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Last Updated: Friday, 21 October 2005, 10:45 GMT 11:45 UK
UK economic growth still sluggish
North Sea oil rig
Much-needed maintenance in the energy sector hit growth
The UK's sharp economic slowdown this year has been confirmed by figures from the Office for National Statistics.

The economy - measured by gross domestic product (GDP) - grew 0.4% between July and September, down from 0.5% in the previous three months.

But the annual rate improved to 1.6% from 1.5% in the previous quarter, the slowest rate since 1993.

In March, the government predicted that the economy would grow by between 3% and 3.5% this year.

Last month, Chancellor Gordon Brown admitted that economic growth in the UK was unlikely to reach his forecasts, with the economy's performance hit by high oil prices.

Overall growth remains sluggish, held back by rising inflation
Geoffrey Dicks, RBS Financial Markets

Mr Brown has promised to update his predictions in the pre-Budget report next month.

The biggest drag on third-quarter growth came from weaker oil output because of the need to carry out repairs to fire damage and an unusually large amount of maintenance to gas platforms in the North Sea.

Output from the sector fell 6.8% during the three month period.

However, manufacturers reversed a 0.2% decrease in production suffered in the previous quarter, increasing output between July and September by 0.4%. The service sector also grew 0.6%.

Rate moves

Analysts said the figures were unlikely to be enough to prompt a cut in interest rates this year.

Earlier this week, hopes of an early rate cut were knocked by stronger-than-expected retail sales data and the latest Bank of England minutes showing that the Bank voted 9-0 to freeze rates at its last meeting.

"Overall growth remains sluggish, held back by rising inflation," said Geoffrey Dicks, RBS Financial Markets economist.

"All the signals from the MPC are that it is happy to wait for inflation to fall and for that to boost output - at this stage it has no desire to force the pace."

However, analysts believe that more rate cuts will be needed at some point.

"The main point though is that output growth has now been below trend for five quarters and we can't see that changing over the next year or so," said Investec economist Philip Shaw.

"This underpins our view that interest rates will have to come down again although the MPC caution on inflation suggests that's not going to happen until early next year."




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