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Last Updated: Wednesday, 26 April 2006, 13:12 GMT 14:12 UK
UK economy records strong growth
UK economic growth graph
The UK economy grew strongly at the start of the year - buoyed by a surprise expansion in manufacturing.

Gross domestic product (GDP) grew by a steady 0.6% in the first three months of the year, the Office for National Statistics (ONS) said.

The figure pushed the annual rate of growth up to 2.2% from 1.8% in 2005.

Surprisingly, manufacturing output grew 0.7% during the period - its strongest performance since 1999, buoyed by increased oil and gas output.

This is not a growth rate that is in need of any further rate policy assistance from the Bank of England
David Brown, economist

Meanwhile, after months of expansion, growth in the service sector slowed to 0.7% from 1.0% in the last three months of 2005.

Weaker retail sales were the main factor behind the slowdown in the sector, the ONS added.

Rate rise unlikely

Analysts said the strong rate of overall growth was "another brick in the wall" against further interest rate cuts.

The 2.2% annual rate of growth matched forecasts set out by the Bank of England in its February inflation report, reinforcing expectations that rates will remain on hold.

"This is not a growth rate that is in need of any further rate policy assistance from the Bank of England," said David Brown, chief European economist at Bear Stearns.

"The UK seems to be running close to optimum output growth potential and the MPC will be turning a deaf ear to any calls for further easing."

So far the Bank of England has kept interest rates unchanged at 4.5% for the past eight months.

'Signs of confidence'

Kate Barker, a member of the Bank's rate-setting committee, added that other factors had left committee leaning towards a decision to leave rates unchanged.

In an interview with the BBC she said "signs of confidence" in the economy were emerging, particularly in the consumer sector, while inflation pressures had eased off.

"Balancing these things out, that's what's led me to vote to leave rates on hold over the last few months," she said.

However, Ms Barker added she was "personally finding it quite a difficult decision" to decide which way rates would go.

The British Chambers of Commerce (BCC) added that while the latest GDP figure confirmed the worst could be over for the economy, "the upturn is very fragile and many risks persist".

As such, it warned the Bank to keep a close eye on developments and react quickly should any signs of weakness emerge.


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