The UK's gross domestic product (GDP) was flat in the three months to March, its weakest performance since the end of the last recession in 1992.
The City had expected confirmation of a provisional estimate of meagre 0.1 per cent growth. The revision was due to an unexpected slump in the fortunes of the recently booming business services sector.
Government bonds rose sharply and the pound fell sharply on hopes of a cut in interest rates, possibly next month. The sterling index dropped 0.7 to 103.5.
Sushil Wadhwani, who joins the Monetary Policy Committee next month, told MPs yesterday that sterling was strongly overvalued, and would probably decline in the next 18 months. He said the competitiveness of sterling had deteriorated by over 35 per cent since 1995, making it "nearly as uncompetitive as in the dark days of 1981".
Mr Wadhwani could hold the swing vote at next month's interest rate meeting, as the other eight members were split down the middle this month.
Economists are divided over whether interest rates have reached their trough. The economy expanded 0.6 per cent year on year, a revision from a 0.7 per cent estimate and the lowest since autumn 1992, the Office for National Statistics (ONS) said. The Treasury, meanwhile, remained confident the economy will meet the Government's target of 1 per cent growth in 1999.
"We have historically low inflation, historically high numbers of people in work," a spokesman said. "Consumers and businesses are optimistic about the future."