UK GDP growth revised down

The economy grew more slowly than previously thought in the first quarter as the service sector recorded its weakest performance in more than a decade, official figures showed yesterday.

The Office for National Statistics said GDP rose by 0.3 per cent on the quarter, revised down from 0.4 per cent. That was the weakest rate in three years. The annual rate was also marked lower to 2.3 per cent from 2.5 per cent.

Analysts had predicted no revisions and the sterling fell after the report as investors scaled back bets the Bank of England would raise interest rates this year to combat above-target inflation.

"It's not a positive report at all," said George Buckley, chief UK economist at Deutsche Bank.

The service sector, which makes up around three-quarters of the British economy, grew by just 0.3 per cent, its weakest rate since the fourth quarter of 1995.

Household consumption rose by a healthy 1.1 per cent but this is expected to slow over the coming months, especially as real disposable income fell by 1.0 per cent, the biggest drop since the third quarter of 1999.

Consumers are clearly running down their savings to maintain their spending habits. The savings ratio fell to 1.1 per cent, its weakest since the fourth quarter of 1959.

Separately, the ONS released first quarter balance of payments data showing a current account deficit of £8.4 billion from a revised £12.2 billion gap in the fourth quarter of last year.

The deficit was lower than expected as the surplus on income rose as banks increased their margins to repair battered balance sheets.