General Election: Unexpected growth slowdown a spanner in the works for the Chancellor

Growth overall is at its weakest since late 2012, when fears of a triple-dip recession loomed

Badly flagging GDP growth delivered a pre-polling day headache to the Chancellor, George Osborne (Getty Images)

Badly flagging GDP growth delivered a pre-polling day headache to the Chancellor, George Osborne, as the pace of the UK economy’s recovery halved to just 0.3 per cent in the first three months of the year.

The shock disappointment in the Office for National Statistics’ initial estimate comes just nine days before what is emerging as the closest general election since 1974.

The final three months of 2014 saw the economy expanding at a quarterly pace of 0.6 per cent. But the estimate for the first quarter of 2015 fell far short of that figure and economists’ predictions of a modest slowdown to 0.5 per cent.

Growth overall is at its weakest since late 2012, when fears of a triple-dip recession loomed.

Flagging construction activity was responsible for dragging down the economy’s overall growth rate, sliding 1.6 per cent in the first quarter. The expansion of the services sector – accounting for more than three-quarters of output – also cooled to 0.5 per cent as business services and finance companies virtually flatlined in their weakest quarter since the end of 2010. Production industries, including manufacturing and mining, also declined marginally.

Economists struggled to explain the figures against a backdrop of record low inflation of 0 per cent and low interest rates, as well as growth in employment, rising real-terms wages and much stronger survey data. Martin Beck, a senior economist at Oxford Economics, said pre-election uncertainty could be playing a part but the figures looked “ripe for revision”.

The headline figure will also be a disappointment for the Bank of England’s rate-setters, who pencilled in 0.6 per cent growth for the quarter in their February inflation report. The data confirmed expectations that interest rates will be on hold at their record low 0.5 per cent until well into next year, pushing the pound lower against the euro and the dollar.

The annual pace of growth also slowed, with the UK economy now 2.4 per cent bigger than it was in the first quarter of last year. Experts said the economy would need to pick up speed in the quarters ahead to meet the Office for Budget Responsibility’s 2.5 per cent growth target this year.

The latest estimates also marked a further deceleration from the recent peak of 0.9 per cent growth during the first quarter of 2014. Royal Bank of Scotland UK economist Ross Walker said: “The key question remains whether the slowing in growth will persist … at these sub-trend rates or, alternatively, whether the economy will stage a more sprightly pick-up.”

The preliminary reading of GDP is largely an estimate by the ONS, and economists will pay heed to the next, more detailed figure – due at the end of May – before giving their verdict on the state of the recovery. Melanie Baker, an economist at Morgan Stanley, said she was “reluctant to view this as the start of a UK slowdown” due to the contrast with buoyant survey evidence.