Growth slowdown expected in new figures

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The Independent Online

The strength of the economy as it enters the age of austerity will be revealed tomorrow as official growth figures are released.

The Office for National Statistics (ONS) is expected to reveal the rate of GDP growth - a broad measure for the health of the total economy - slowed to 0.4% in the three months to December.

This compares to 0.7% in the previous three months and 1.1% in the second quarter.

The end of the construction blip - which has boosted growth in previous quarters - and the impact of the snow on economic activity in December are both expected to hit GDP in the quarter.

But Howard Archer, chief UK and European economist at IHS Global Insight, said there was considerable uncertainty over how much December's severe weather hit overall activity, so the range of forecasts is quite wide, from 0.2% to 0.6%.

Mr Archer warned dismal retail figures for December released on Friday could see GDP undershoot his forecast of 0.4%.

While there are still signs of robust growth in the UK, a further slowdown will do little for prospects for the economy over the next year and its ability to withstand the Government's deficit-busting austerity measures.

Chancellor George Osborne unveiled an £81 billion package of spending cuts - leading to hundreds of thousands of job losses - last year to tackle the creaking public finances.

The ONS will also release public borrowing figures for December, which are expected to reveal Britain fell further into the red by £21 billion, leading to a total for the financial year to date of around £125 billion.

Last month, higher-than-expected borrowing figures prompted some economists to warn the coalition it was in danger of exceeding the annual target set by the tax and spending watchdog, while the Treasury said the figures reinforced the need for fiscal tightening.

Mr Osborne has pinned his hopes on the private sector picking up the expected slack in the economy and holding off a double-dip recession.

So a further slowdown in growth in the fourth quarter - which will exclude any further slowdown in consumer spending caused by the VAT hike in January - will be far from welcome.

Philip Shaw, chief economist at brokers Investec, has forecast growth of 0.3%.

He said: "In the second and third quarters of this year, construction provided a positive surprise contributing to quarterly growth. Indicators point towards a tapering off in construction's contribution.

"The other fourth quarter story relates to the heavy snow seen in December which is likely to have provided downward pressure on services and manufacturing."

Weaker-than-expected growth figures will throw weight behind the argument against an interest rate hike, which is becoming increasingly likely as stubbornly-high inflation continues to soar.

Last week, the ONS revealed the consumer prices index (CPI) rate of inflation rose to 3.7% in December, pushed higher by rising food and petrol bills.

Bank of England governor Mervyn King is expected to discuss his concerns over inflation in a speech in Newcastle on Tuesday evening.