UK growth falls to lowest level since 1992

The UK economy is slowing faster than previously thought, according to official figures published yesterday that will bolster hopes of fresh cuts in interest rates.

The UK economy is slowing faster than previously thought, according to official figures published yesterday that will bolster hopes of fresh cuts in interest rates.

The economy grew by just 1.6 per cent last year, down from the early estimate of 1.7 per cent. This was the lowest since 1992 and exactly in line with the figure in the Government's pre-Budget report last November.

The figures also reveal that France is close to deposing Britain from its position as the world's fourth-largest economy. France's GDP in 2002 was ¤1,507bn (£1,027bn), against Britain's £1,037bn. A further 1 percent fall in sterling would see France overtake the UK.

The UK economy grew slower in every quarter of last year, revisions by the Office for National Statistics (ONS) showed.

Growth in the final quarter was pegged back to an annual rate of 2.1 rather than 2.2 per cent while the quarterly growth rate of 0.4 per cent narrowly avoided being revised down.

The cut to growth in the final quarter was attributed to a drop in business at hotels and catering trades. This fed through to a downward revision for the services sector.

This meant that for 2002 the once-booming sector grew at its slowest rate for 10 years. The ONS said a sharp decline in telecoms and business services also played a large part.

Meanwhile, manufacturing industry suffered its worst 12 months in 11 years, business investment was the lowest since modern records began, the trade deficit hit a 300-year trough and workers' compensation grew at the slowest rate since 1994.

The Chancellor's blushes were saved by a massive surge in construction output and government spending. The housing boom and the rush to improve the public infrastructure delivered a ninth successive quarter of growth that made 2002 the best year since the peak of the last boom in 1988.

There was also an acceleration in the rate of consumer spending in the last three months of the year, capping the seventh successive year of above-trend growth ­ something not seen for 100 years.

But, in the light of the warning on Tuesday from Mervyn King, the deputy governor of the Bank of England, that consumer spending was slowing, analysts said any further downward revisions would be seen as opening the door to a rate cut.

Martin Essex, at Capital Economics, said: "The danger is that if consumer spending slows too fast too soon, the UK economy will be left without any upward momentum at all."

The markets are now waiting for consumer confidence figures published later today to see if Britons have suffered the degree of collapse in optimism seen in the US on Tuesday.

Business organisations have warned the unprecedented scale of the cuts in business investment ­ an annual fall of 10.1 per cent ­ will make it harder for the economy to rebound when world conditions improve.

While this was anticipated in the PBR forecasts, the Treasury is betting on a rebound of about 3 per cent this year accelerating to 4 per cent in 2004 and 4.5 per cent in 2005.

The PBR predicted the economy would grow by 2.5 to 3.0 per cent this year, and 3.0 to 3.5 per cent in 2004. But earlier this month the Bank cut its growth forecaststo 2.5 per cent this year and 2 per cent in 2004.