UK economic growth slows to 0.3% in first quarter

The UK economy grew at the slowest pace since the final quarter of 2012 in the first three months of the year.

With just over a week to go until the general election, Labour seized on the lower growth figures. Shadow chancellor Ed Balls said that "while the Tories have spent months patting themselves on the back, these figures show they have not fixed the economy for working families".

But while today's growth figures are notably weaker than the 0.6 per cent expansion in the previous quarter, unofficial survey data remains strong and many economists and business figures remain upbeat about the prospects for growth this year. The figures are also preliminary and will be revised in coming months as more data, particularly for the service sector, becomes available.

The news caused an initial dip in Sterling, but it later bounced back against the dollar to its highest level for nearly two months

John Hawksworth, chief economist at consultancy PwC, said that the data indicated "a wobble rather than the start of a serious slowdown".

John Cridland, director-general of the Confederation of British Industry, said that the feedback from his members hinted that the economy is "more resilient" than the figures suggest.

"Prospects for this year remain bright, with lower oil prices and inflation continuing to support growth, despite challenges for the North Sea industry."

Leaders of all political parties jumped on the figures, claiming they justified their approach to the economy.

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"Today is a reminder that the recovery cannot be taken for granted and that the economy is on the ballot paper at this election, and with rising instability abroad now would be the very worst time to vote for instability at home."

Prime minister David Cameron had a similar message, tweeting: "We can't take the recovery for granted. Don't risk it with Ed Miliband and the SNP [Scottish National party]."

Danny Alexander, the Liberal Democrat chief secretary to the Treasury, said that while the British economy is recovering well "these figures remind us that there is still work to do to secure the recovery".

The drop in the pace of expansion follows a series of weaker-than-expected output data from the construction and production industries.

While output in the UK's dominant service sector increased by 0.5 per cent in the first quarter, this was not enough to stop the headline rate of growth slowing when set alongside falls of 1.6 per cent in construction and 0.1 per cent in the production industries.

This means the economy was now 2.4 per cent bigger in the first quarter of this year than in the same period last year.

The performance of the service sector, while still healthy, was notably lower than the 0.9 per cent expansion recorded in the final quarter of 2014. The fall was largely due to stalling growth in the business and financial services sector, which grew by just 0.1 per cent, compared to 1.3 per cent previously.

Ross Walker, senior UK economist at RBS who has been on the more pessimistic end of City forecasters, said that the "extent of the slowdown [in services] does give pause for thought".

He has cut his forecast for annual growth to 2.2 per cent from 2.4 per cent, lower than consensus forecasts for 2.6 per cent in light of the deceleration in quarterly growth since the start of last year.

The key question is whether growth will "settle at these sub-trend rates or, alternatively, whether the economy will stage a more sprightly pick-up".

Additional reporting by Jamie Chisholm

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