UK growth drops to 0.2%

The pace of economic recovery in the UK has slowed with gross domestic product rising by 0.2% between January and March.

This is the first estimate for Q1 GDP growth from the Office for National Statistics and reflects slower economic growth compared to a rise of 0.4% in Q4 2009.

The ONS says the weaker growth was driven by a poorly performing services sector, and in particular distribution, hotels, and restaurants which fell 0.7% in Q1, compared with an increase of 1.9% in the previous three months.

Business services and finance rose 0.6% in the first three months of the year, with banking and research contributing most to the rise in growth.

Charles Davis, senior economist at the Centre for Economics and Business Research, says: “Overall, today’s data show the UK recovery is still fragile.

“The Bank of England is now in the uncomfortable position of above target inflation and weaker growth.

“We expect growth to accelerate a touch in the second quarter as the boost from a weaker pound drives growth in exports.

“However, with record public sector borrowing, the key factor ahead is the extent of post-election fiscal consolidation.

“This will be a major drag on growth in 2011 and 2012 in particular and will cause the Monetary Policy Committee to think very hard before raising rates in 2010.”

The GDP growth estimate ends a week of gloomy data from the ONS, with the Consumer Prices Index measure of inflation at 3.4%, and unemployment at 2.5 million, the highest figure since 1994.