U.K. Growth Slows to Weakest Pace in More Than a Year


The U.K. economy grew at the slowest pace in more than a year during the Q4 after a jump in credit costs hampered brokerage and computer services.

Gross domestic product increased 0.6 percent in the three months through December, the least since the third quarter of 2006, the government said in London today.

Growth is forecast by economists to slow to 1.8 percent this year, matching the weakest pace since 1992, as the U.S. subprime mortgage crisis curbs consumer spending and halts a housing boom. Faster inflation may limit the Bank of England's ability to cut interest rates, Governor Mervyn King said.

Bank of England policy makers voted 8-1 to keep the interest rate unchanged at 5.5 percent in January as inflation concerns led a majority to dismiss David Blanchflower's call for a reduction. The minutes, published today, suggested the U.K. central bank has less scope to lower rates as quickly as the U.S. Federal Reserve, which cut its rate by 0.75 percentage point yesterday.

Growth in U.K. services, three quarters of the economy, slowed to 0.7 percent from 0.8 percent, led by the smallest expansion in business services and finance since the second quarter of 2003.

Services including banking, share dealing and computer maintenance, accounting for 28 percent of the economy, grew 0.4 percent in the quarter, a third of the pace of the previous three months.

Industrial production rose 0.3 percent, with no change in manufacturing output, the Office for National Statistics said.

Rising oil and food prices may push U.K. inflation above 3 percent this year, the upper limit of the Bank of England's 2 percent target, even as growth slows sharply, King said in a speech yesterday.

Growth in the fourth quarter slowed from 0.7 percent in the third quarter and matched the weakest pace since the July- September period 2005, when the economy grew 0.5 percent.


TradingEconomics.com, Bloomberg
1/23/2008 8:43:52 AM