London, Feb 23: The British economy grew more slowly than first thought in the final quarter of last year, slipping below trend for the first time in some 18 months.The Office for National Statistics said gross domestic product (GDP) grew by 0.4 percent in the three months to December last year, down from an initial estimate of 0.5 per cent. Year-on-year growth was revised to 3.0 per cent from a previously reported 3.1 per cent.
The data gave a clear snapshot of the interest rate dilemmafacing Bank of England governor Eddie George -- manufacturers are buckling under the weight of the mighty pound, but services and consumer spending continue to romp ahead.
With growth in the British economy so dangerously unbalanced, another rise in rates could tip the manufacturing sector into recession, yet buoyant consumer spending and robust wage growth are threatening to thwart the Bank in achieving its 2.5 percent inflation target.
"The dichotomy in the British economy is still very muchthere," said Philip Shaw,economist at Investec. "The overall increase in GDP was revised down but the growth in the service sector nudged up a bit. It will only add to the confusion over interest rates.
"The pound has risen by around 25 percent against other majorcurrencies over the last 18 months, making imports cheaper but exports more expensive. Manufacturers have until recently managed to absorb the price rises in their margins, but are well and truly feeling the pinch now.That was reflected in total industrial production which fell1.1 percent in the three months to December, the mirror image of services growth which was up 1.1 percent.
Consumer spending was up 1.3 percent on the quarter, and 4.5percent higher on the year -- the strongest rate of growth since the second quarter of 1989.
The opposition Conservative Party warned Chancellor of the Exchequer Gordon Brown that the economy was now clearly slowing."Although the Chancellor enjoys nothing more than piling onextra taxes where he thinks they won'T be seen, I hope herecognises the immense danger that such a policy would pose," Shadow Chief Secretary to the Treasury David Heathcoat-Amory said in a statement.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
