The U.K. economy grew at the slowest pace since 2005 in the first quarter as the seizure in credit markets hurt banks and falling house prices threatened consumer spending.
Gross domestic product rose 0.4 percent in the three months through March, the least since the first quarter of 2005, the Office for National Statistics said in London today. The result matched the median forecast of 35 economists in a Bloomberg News survey. The economy expanded 2.5 percent from a year earlier.
Financial services expanded at the slowest pace in five years as Royal Bank of Scotland Group Plc and HSBC Holdings Plc led writedowns among U.K. banks and added to global losses of almost $309 billion. With the worst housing slowdown since 1992 adding to recession risks, the Bank of England has cut interest rates three times and tried to ease strains in the mortgage market.
"We expect the economy to slow, and that will dominate the outlook for inflation and lead to further cuts in interest rates in due course,'' Nick Bate, an economist at Merrill Lynch & Co. who used to work at the U.K. Treasury, said in an interview on Bloomberg Television. "We're not looking for a recession. You can't rule it out.''
Services grew 0.6 percent in the first quarter, the least since the same quarter in 2005, the statistics office said. Overall industrial production, which includes oil and gas extraction and utilities, dropped 0.1 percent, masking a 0.5 percent increase in factory output, the statistics office said.
Rate Cuts
Government bonds pared declines, with the yield on the two- year note at 4.58 percent, compared with 4.5 percent yesterday. The pound rose as high as $1.9885 after the report and was at $1.9841 at 12:55 p.m. in London. It was at 78.66 pence per euro compared with 79.45 pence yesterday.
The central bank's benchmark interest rate reached a six-year high of 5.75 percent in July. Since December, policy makers have reduced it three times to 5 percent to avert a recession.
Support for Prime Minister Gordon Brown has waned as slowing growth hurts the reputation built up during his 10 years as finance minister. While Brown's ruling Labour Party has presided over the longest stretch of growth in at least a half century, the International Monetary Fund now predicts the economy will expand just 1.6 percent this year, the least since 1992.
Poured Money
"Gordon Brown failed to fix the roof when the sun was shining,'' Conservative George Osborne said last week. Support for the party now trails the opposition Conservatives by 18 points, more than at any time since 1987, according to a YouGov Plc poll published today.
Brown poured money into schools and hospitals during his time as Chancellor of the Exchequer, leaving Britain with a budget deficit that the European Commission says will reach 3 percent of gross domestic product this year, three times the average in the euro region. He also presided over a housing boom that encouraged consumers to take on record debt.
The first quarter annual growth rate published today is still faster than the fourth-quarter readings of 2.2 percent in Europe and 2 percent in Japan, and matches the figure for the U.S.
Expansion in business services and finance, which make up 28 percent of the economy, was 0.4 percent, the weakest in almost five years, the statistics office said. As writedowns stemming from the U.S. subprime collapse hurt banks' earnings, the Centre for Economic and Business Research Ltd. estimates almost 20,000 job losses will be cut in London's financial-services industry over the next two years.
Depleted Capital
Royal Bank of Scotland, the U.K.'s second-biggest lender, said April 22 it will sell 12 billion pounds ($23.7 billion) of new shares to investors to boost capital depleted by further writedowns.
The global jump in credit costs is also hurting home values, an engine of growth over the past decade, as mortgage lenders withdraw their best offers and raise interest rates.
U.K. home-loan approvals fell to the lowest in a decade in March, the British Bankers Association said this week. House prices declined 2.5 percent last month, the most since 1992, according to HBOS Plc.
Chancellor of the Exchequer Alistair Darling is trying to kick-start mortgage lending, which seized up as writedowns and credit losses from U.S. housing market turmoil climbed above $290 billion.
The Bank of England, backed by the Treasury, on April 21 offered to swap around 50 billion pounds in government bonds for mortgage-backed securities to help financial institutions fund their businesses.
Housing Slump
The Bank of England's decision to cut interest rates on April 10 produced the first three-way split in almost two years as policy makers debate the economic outlook, with David Blanchflower voting for a bigger cut and Andrew Sentance and Timothy Besley wanting no change.
Blanchflower said the prospect of a marked slowdown warranted the first half-point interest-rate cut since 2001. The majority voted for a quarter-point reduction, while Sentance and Besley argued for no change because of the risk higher consumer prices may get entrenched in the economy.
Inflation has exceeded the bank's 2 percent target for six months, and Chief Economist Charles Bean said last week it's likely to match a decade-high above 3 percent in the second half of the year. Crude oil rose above $119 per barrel this week for the first time, and rice climbed past $25 per 100 pounds.
Growth also showed few signs of faltering until now. Retail sales rose 2 percent in the first quarter, the most since 2004 for the first three months of the year. While consumers have record debt of 1.4 trillion pounds, mortgage arrears and possessions are still low and employment is rising, policy makers said this month.
"We expect the retail sales number to slow,'' said Merrill's Bate. "There are many reasons to expect the U.K. consumer will pare back on spending. The services sector is highly exposed to the domestic economy.''
Gross domestic product rose 0.4 percent in the three months through March, the least since the first quarter of 2005, the Office for National Statistics said in London today. The result matched the median forecast of 35 economists in a Bloomberg News survey. The economy expanded 2.5 percent from a year earlier.
Financial services expanded at the slowest pace in five years as Royal Bank of Scotland Group Plc and HSBC Holdings Plc led writedowns among U.K. banks and added to global losses of almost $309 billion. With the worst housing slowdown since 1992 adding to recession risks, the Bank of England has cut interest rates three times and tried to ease strains in the mortgage market.
"We expect the economy to slow, and that will dominate the outlook for inflation and lead to further cuts in interest rates in due course,'' Nick Bate, an economist at Merrill Lynch & Co. who used to work at the U.K. Treasury, said in an interview on Bloomberg Television. "We're not looking for a recession. You can't rule it out.''
Services grew 0.6 percent in the first quarter, the least since the same quarter in 2005, the statistics office said. Overall industrial production, which includes oil and gas extraction and utilities, dropped 0.1 percent, masking a 0.5 percent increase in factory output, the statistics office said.
Rate Cuts
Government bonds pared declines, with the yield on the two- year note at 4.58 percent, compared with 4.5 percent yesterday. The pound rose as high as $1.9885 after the report and was at $1.9841 at 12:55 p.m. in London. It was at 78.66 pence per euro compared with 79.45 pence yesterday.
The central bank's benchmark interest rate reached a six-year high of 5.75 percent in July. Since December, policy makers have reduced it three times to 5 percent to avert a recession.
Support for Prime Minister Gordon Brown has waned as slowing growth hurts the reputation built up during his 10 years as finance minister. While Brown's ruling Labour Party has presided over the longest stretch of growth in at least a half century, the International Monetary Fund now predicts the economy will expand just 1.6 percent this year, the least since 1992.
Poured Money
"Gordon Brown failed to fix the roof when the sun was shining,'' Conservative George Osborne said last week. Support for the party now trails the opposition Conservatives by 18 points, more than at any time since 1987, according to a YouGov Plc poll published today.
Brown poured money into schools and hospitals during his time as Chancellor of the Exchequer, leaving Britain with a budget deficit that the European Commission says will reach 3 percent of gross domestic product this year, three times the average in the euro region. He also presided over a housing boom that encouraged consumers to take on record debt.
The first quarter annual growth rate published today is still faster than the fourth-quarter readings of 2.2 percent in Europe and 2 percent in Japan, and matches the figure for the U.S.
Expansion in business services and finance, which make up 28 percent of the economy, was 0.4 percent, the weakest in almost five years, the statistics office said. As writedowns stemming from the U.S. subprime collapse hurt banks' earnings, the Centre for Economic and Business Research Ltd. estimates almost 20,000 job losses will be cut in London's financial-services industry over the next two years.
Depleted Capital
Royal Bank of Scotland, the U.K.'s second-biggest lender, said April 22 it will sell 12 billion pounds ($23.7 billion) of new shares to investors to boost capital depleted by further writedowns.
The global jump in credit costs is also hurting home values, an engine of growth over the past decade, as mortgage lenders withdraw their best offers and raise interest rates.
U.K. home-loan approvals fell to the lowest in a decade in March, the British Bankers Association said this week. House prices declined 2.5 percent last month, the most since 1992, according to HBOS Plc.
Chancellor of the Exchequer Alistair Darling is trying to kick-start mortgage lending, which seized up as writedowns and credit losses from U.S. housing market turmoil climbed above $290 billion.
The Bank of England, backed by the Treasury, on April 21 offered to swap around 50 billion pounds in government bonds for mortgage-backed securities to help financial institutions fund their businesses.
Housing Slump
The Bank of England's decision to cut interest rates on April 10 produced the first three-way split in almost two years as policy makers debate the economic outlook, with David Blanchflower voting for a bigger cut and Andrew Sentance and Timothy Besley wanting no change.
Blanchflower said the prospect of a marked slowdown warranted the first half-point interest-rate cut since 2001. The majority voted for a quarter-point reduction, while Sentance and Besley argued for no change because of the risk higher consumer prices may get entrenched in the economy.
Inflation has exceeded the bank's 2 percent target for six months, and Chief Economist Charles Bean said last week it's likely to match a decade-high above 3 percent in the second half of the year. Crude oil rose above $119 per barrel this week for the first time, and rice climbed past $25 per 100 pounds.
Growth also showed few signs of faltering until now. Retail sales rose 2 percent in the first quarter, the most since 2004 for the first three months of the year. While consumers have record debt of 1.4 trillion pounds, mortgage arrears and possessions are still low and employment is rising, policy makers said this month.
"We expect the retail sales number to slow,'' said Merrill's Bate. "There are many reasons to expect the U.K. consumer will pare back on spending. The services sector is highly exposed to the domestic economy.''
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