Economy grinds to halt with flat GDP

THE ECONOMY ground to a halt in the first quarter of this year, after six and a half years of uninterrupted growth, according to revised figures yesterday.

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 the 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 downward revision from a 0.7 per cent estimate and the lowest since autumn 1992, the Office for National Statistics (ONS) said.

The Treasury 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."

The ONS revised down the quarterly growth in the services sector to 0.2 percent from 0.4 per cent. It highlighted a 0.3 per contraction among business services companies, singling out insurance companies, management consultants, architects and engineers, recruitment consultants and the advertising industry. This represented a sharp reverse. Business services grew by almost 1 per cent during the previous two quarters.

Net trade cut GDP by 0.5 per cent in the quarter as exports recorded their second sharp quarterly drop and imports rose. This was the worst impact trade has had on the economy since records began in 1955.

Manufacturing suffered its third successive quarterly decline, contracting by 0.3 per cent in the quarter and 1.2 per cent in 12 months. Although there could be further downwards revisions, most economists believe the UK will avoid technical recession, or two successive quarterly falls in GDP. Most evidence points to a recovery.

One sign of this came in a report yesterday warning of overheating in the housing market. A severe shortage of homes for sale combined with growing demand is threatening to bring about a small-scale repeat of the boom of the late 1980s, according to the Royal Institution of Chartered Surveyors.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Accounts Assistant

£30,000 Annual: Sheridan Maine: A fantastic opportunity has arisen for a perso...

Richard Bishop: Accounts Payable Clerk

£11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...

Jemma Gent: Management Accountant

£250-£300 Day Rate: Jemma Gent: Are you qualified accountant with previous exp...

Richard Bishop: Accounts Payable Clerk

£11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor