Britain's growth grinds to a halt

Jane Padgham12 April 2012

GORDON Brown's forecasts for economic growth were left in tatters today after new figures showed growth ground to a halt at the turn of the year.

National Statistics said gross domestic product - a measure of overall economic activity - was unchanged in the first quarter of this year, a downward revision from an earlier estimate of 0.1% growth.

The economy also failed to grow during the final quarter of last year, meaning total stagnation between October and March. The year-on-year rate of growth slowed to 1% in the first quarter - the weakest pace of expansion since the end of 1992.

In the US, first-quarter GDP growth was also lowered, from an annualised 5.8% to 5.6%.

The disastrous UK news left Brown's growth forecast for this year looking hopelessly optimistic. The Chancellor has pencilled in growth of between 2% and 2.5%. It also reignited speculation that Brown will have to raise taxes again to plug a gaping hole in the public finances.

A Treasury spokesman said: 'It is too early to make any revisions to Budget forecasts which in any case were made on cautious and prudent assumptions.'

GDP fell by £3m in the fourth quarter of last year and rose by £76m in the first quarter of this year. The small changes were both rounded to zero, but another GDP fall in the first quarter would have meant the economy was technically in recession.

The downward revision followed a reassessment of service sector growth, which is now calculated to have grown by just 0.2% in the first quarter, rather than the provisional 0.5%.

Economists played down the implications for interest rates. Jeremy Hawkins at Bank of America said: 'Data since then have been strong enough to suggest today's news will have little impact on the Bank of England. We still look for the first tightening in July.'

The pound was little changed at $1.4565 while short sterling futures, which track interest rate expectations, reversed earlier losses to make modest gains.

Meanwhile, the Centre for Economics and Business Research slashed its growth forecasts for London's economy. It cited the slump in the City and lower bonuses.

It predicted spending in London stores will slow dramatically this year and 33,000 jobs will be axed. It expects London's economy to grow by 1.4% this year, from 1.8% last year and much lower than the 1.9% pencilled in three months ago.

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