UK growth worst in four years as hi-tech sector tumbles 30 per cent

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The Independent Online

The chill wind from the US downturn blew through Britain's hi-tech economy in January sending output of the sector tumbling almost 30 per cent, it has emerged.

The chill wind from the US downturn blew through Britain's hi-tech economy in January sending output of the sector tumbling almost 30 per cent, it has emerged.

The sharp fall dragged down overall manufacturing output, which contracted by almost 1 per cent - its worst performance for almost four years, official figures showed.

The news will come as a blow for the Chancellor of the Exchequer, who said in his Budget speech on Wednesday that UK growth would not be cut by the US slowdown.

Meanwhile, George Soros, the international speculator turned philanthropist, told The Independent he believed there had been a recent sharp slowdown in the hi-tech economy.

"Europe is much better situated [than the US] but it won't be totally unaffected," he said. "I think there has been a significant slowdown in the last few weeks in the hi-tech area in Europe."

National Statistics (NS), the government's number-crunchers, said the output of firms involved in optical networking and mobile phones fell by 29 per cent in January from December's record level.

Total manufacturing fell 0.9 per cent, the worst since March 1997. Without a strong recovery in the car industry, manufacturing would have fallen 1.4 per cent, NS said.

The collapse takes the hi-tech sector's output back to its level in March 2000, in effect, wiping out 10 months of growth.

The figures support recent signs of a slowdown in the hi-tech sector. The global leaders in mobile phone manufacturing, including Nokia, Ericsson and Motorola, have all warned of slower growth this year.

In the UK optical networking companies, Bookham and Marconi, and other network component providers, such as Spirent and Filtronic, have all seen their share prices tumble.

Economists said this was the first real evidence of a fallout from the US. "This is replicating the US experience," said Simon Robinsohn at fund managers Gerrard.

"December was unsustainable and in all probability the excess is now being banked up in warehouses around the country."

Many in the City said these data had clinched the argument for a cut in interest rates next month. "These numbers have got to be good for interest rate sentiment," said Jonathan Loynes, at the consultancy Capital Economics.

However, others pointed out that the hi-tech slump could simply be a response to heavy pre-Christmas production. "It would be wrong to conclude a rate cut is needed because of the domestic situation," said David Hillier, at Barclays Capital.

But NS said only one of the broad manufacturing sectors - metal production - enjoyed growth in January. It also downgraded its trend estimate for manufacturing from zero growth to minus 0.5 per cent.

The phone and networking sector has propped up industrial production in recent years, rising 13 per cent last year and 8 per cent in 1999.

The gloom was compounded by an estimate by the National Institute for Economic and Social Research that UK GDP grew 0.3 per cent in the quarter to February. Analysts had expected growth of 0.5 per cent.

But NIESR said the extra spending announced in the Budget would "prove important in preventing a significant overall slowdown this year".

Signs of an impact on the UK from the US will be used by the "doves" on the Monetary Policy Committee to call for a further cut in rates.

The Bank of England left the key rate on hold yesterday after cutting it by a quarter-point in February.