Government officials this morning unexpectedly revised downwards their figures for first-quarter economic growth, strengthening the case for an early cut in interest rates.
Sterling threatened to break below $1.80 as the Office of National Statistics said GDP during the period grew by 0.4 per cent from the previous quarter and 2.1 per cent on a year-on-year basis. The figures were downward adjustments from rises of 0.5 per cent and 2.7 per cent respectively.
The annual rate is now the lowest since the last quarter of 2002. The revisions took economic growth below the long-run average in the first quarter - the quarterly trend rate of 0.6 per cent.
The figures could raise expectations that the Bank of England will cut interest rates this summer as consumer spending slowed to a quarterly rate of just 0.1 per cent, the weakest level since the fourth quarter of 2000.
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“There is a very real risk that consumer spending will be muted for an extended period without any other areas of the economy compensating significantly for this,” Howard Archer, chief UK economist at Global Insight, said.
“Economic performance of the UK is substantially more mediocre than thought before,” said Andrij Halushka, of the Centre for Economics and Business Research.
Manufacturing output, which still accounts for around 18 per cent of GDP, dropped 0.9 per cent from the fourth quarter, against the previous estimate of a 0.7 per cent drop and an advance estimate of a 0.1 per cent growth.
The services sector, which accounts for 72 per cent of total GDP, posted quarterly growth of 0.7 per cent - lower than the previous estimate of 0.8 per cent.
Government expenditure continued to rise at a steady rate of 0.7 per cent in the first quarter from the previous quarter - unchanged from the previous estimate.
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Separately, NS revised upwards GDP growth data for the years 2002, 2003 and 2004, largely on the back of higher estimates for consumer spending.
Mr Archer said: “The revisions to the GDP data now indicate that the slowdown in growth since mid-2004 has been more marked than previously indicated.”
Countering this, the upward revisions to overall growth in 2002-2004 mean that the pressures on capacity were greater than previously thought, he added.
For 2004, growth was revised up to 3.2 per cent from 3.1 per cent previously, for 2003 to 2.5 per cent from 2.2 per cent and for 2002 to 2.0 per cent from 1.8 per cent.
The statistics office also said the deficit in net exports in the first quarter was at £10.9 billion, narrower than the £11.3 billion shortfall in the last quarter of 2004.
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It also reported that the household savings ratio rose to 4.8 per cent in the first quarter from 3.9 per cent in the previous three month period.
Sterling was trading at $1.8017 in mid-morning trade, off a low of $1.8001, compared with 1.8042 just before the data was released.