Britain’s economy slowed more sharply than expected the first three months of 2015 in a setback for Prime Minister David Cameron who has staked his campaign for re-election next week on the strength of the recovery.
Gross domestic product grew by 0.3 per cent in the January-March period compared with the last three months of 2014 when quarterly growth was 0.6 per cent, the Office for National Statistics said yesterday.
It was the slowest growth since the fourth quarter of 2012, the ONS said, when there were fears that Britain was tipping back into recession.
The median forecast in a Reuters poll of economists had pointed to only a marginal slowdown to growth of 0.5 per cent.
The preliminary reading of GDP is largely an estimate by Britain’s statisticians with more half of the data yet to be gathered, and the figures are often revised.
The chief economist at the ONS, Joe Grice, warned against reading too much into one quarter’s figures.
But coming just nine days before the May 7 national election, the slowdown is sure to be seized upon by the opposition Labour Party which has been running neck-and-neck with Cameron’s Conservatives in opinion polls.
The Conservatives’ campaign message has been dominated by references to the successes of their “long-term economic plan” and calls on voters to give them another term in office to finish off the job of fixing Britain’s public finances. Labour has focussed much of its campaign on what it calls Britain’s cost-of-living crisis after wages failed to keep pace with inflation throughout most of the five years since Cameron became prime minister.
Britain’s economy was 2.4 per cent bigger than it was in the first quarter of last year.
The Reuters poll had forecast annual growth of 2.6 per cent.
The ONS said quarterly growth in Britain’s dominant services sector slowed to 0.5 per cent from 0.9 per cent in the October-December period, pushed down by the weakest growth in business services and finance since the end of 2010.
Industrial output shrank slightly and construction contracted by 1.6 per cent.
Economists had expected growth to ease back in the first quarter after monthly indicators from the ONS came in weaker than expected. But strong private-sector surveys of business had led most of them to predict only a moderate slowdown.
The ONS said yeserday that Britain’s dominant services sector grew 0.3 per cent in the month of February after shrinking by 0.2 per cent in January.
Britain’s economy is now 4.0 per cent larger than its peak before the financial crisis, and 8.4 per cent bigger than around the time when Cameron’s Conservative-led coalition came to power in May 2010, the ONS said.
The weak first-quarter growth rate contrasts with an upbeat tone from the Bank of England at its latest monetary policy meeting.
Minutes of that meeting published last week showed the Bank’s interest rate-setters were optimistic about the prospects for a recovery in growth in the eurozone, which would boost British exports, and there were no calls for a rate cut.
Most economists have said they do not expect Britain’s economy in 2015 as a whole to lose much momentum after last year’s growth of 2.8 per cent, which was the strongest among the Group of Seven industrialised nations.
But some economists have said an inconclusive outcome of next week’s elections, which might lead quickly to another election, could hurt confidence and slow investment which would restrict broader economic growth.