The British economy grew less strongly than expected in the fourth quarter of last year, as consumer spending slowed to its weakest pace in nearly two years, official data showed.
The Office for National Statistics said the economy grew an unrevised 0.7 per cent in the October-December period, up from the 0.5 per cent in the third quarter but less than the 0.8 per cent economists had forecast. Annual growth was revised up to 2.9 per cent from an initially reported 2.8 per cent owing to better performance in the production industries, the ONS said. For the full year 2004, the world's fourth largest economy grew 3.1 per cent.
Quarterly household spending growth slowed in the fourth quarter to just 0.4 per cent, its weakest since a 0.2 per cent contraction in the first quarter of 2003 when the run-up to the Iraq war dented consumer sentiment.
The slowdown was due to slower spending on durable and semi-durable goods, the ONS said. Annual growth in household spending for the first three quarters of last year were also revised down by 0.1 per centage point each.
Analysts said that slowdown might be of concern to the Bank of England, which has said it is closely watching household spending figures, although for now it did nothing to deter growing expectations for a rate hike later this year.
"They were slightly disappointing numbers, in particular the weaker household spending number, which will be of particular interest to the MPC," said Mark Miller, economist at HBOS. "For the near future I think rates will be on hold. There is a risk of a further hike in the latter part of the year," Mr Miller said.
Short sterling interest rate futures rose slightly after the figures, which coincided with figures showing weaker mortgage lending and approvals, as the numbers highlighted the fact that downside risks to the economy remain.
Services sector growth was revised down to 0.9 per cent from one per cent recorded in the first estimate, due to lower data for wholesale activity in the distribution, hotels and catering sector but still remained fairly robust.
"I don't think that is a particularly big surprise for the Bank of England and service sector growth is still relatively strong," said Alan Castle, UK Economist at Lehman Brothers.
The figures also showed government spending slowed to 0.8 per cent on the quarter from 1.2 per cent in the third quarter.
Gross fixed capital formation rose 1.4 per cent on the quarter, driven by increased investment in buildings and structures, but excluding residential dwellings, the ONS said.