The prospect of the Iraq war paralysed British business and consumer activity, according to revised figures released yesterday by the Office for National Statistics (ONS) for the first three months of this year.
The ONS said Gross Domestic Product rose by only 0.1 per cent in the first quarter, instead of the previous estimate of 0.2 per cent, making it the weakest growth rate since the second quarter of 1992, at the tail end of the last recession. That took the 12-month growth rate to the end of March down from 2.2 to 2.1 per cent, the worst for a year, increasing the possibility that Gordon Brown's forecast of 2.5 per cent for the current year might prove to be optimistic.
The revision was made in response to a sharply lower estimate for construction output after publication of new figures by the Department of Trade and Industry. Consumer spending was also revised down to a growth of just 0.2 per cent for the quarter, the weakest since the third quarter of 1997. GDP growth in the fourth quarter of last year was revised up to 0.5 per cent from an initial estimate of 0.4 per cent, taking the year's figure for 2002 up from 1.8 per cent to 1.9 per cent.
Economists were divided about the significance of the new numbers. Alan Castle, UK economist at Lehman Brothers, said: "It confirms our view that the economy was pretty weak in the first quarter, and we don't think it's going to improve much in the second."
However, Bill Robinson, business economist at Pricewaterhouse Coopers, said: "It has been fairly obvious that the first half of the year was pretty soft. I am not surprised that growth has turned down because no one was taking any decisions before the Iraq war. I am inclined to think that those decisions were merely postponed. There is quite a lot of evidence of consumer spending weakness, but I think the indecision in business is behind us." The ONS also said that the UK balance of payments showed a current account surplus of £2.4bn in the first quarter after a £1.8bn deficit in the fourth quarter. This was the first surplus since the third quarter of 1998 and the highest surplus since the first quarter of 1981. The reason was a record surplus on investment income because earnings of UK oil companies rose sharply in the wake of soaring oil prices ahead of the Iraq war.
The trade deficit narrowed in the first quarter to £6.2bn, largely because of higher exports of goods.
Net direct investment - outward investment less inward investment - was £42bn in the first quarter compared with a net disinvestment of £18.5bn in the previous quarter. The biggest foreign deal in the January to March period was HSBC's £9.1bn takeover of the US-based Household International. UK investors bought £7.2bn of foreign bonds, but sold £1.3bn of overseas equities.Reuse content