New figures ease pressure on UK interest rates

Pressure for a rise in interest rates eased slightly today after UK economic growth was left unchanged at 0.7% in the final three months of 2004.

Economists had expected the figure to be revised upwards by at least 0.1% after the Office for National Statistics (ONS) said earlier this month that it had underestimated the strength of the manufacturing sector.

Although manufacturing grew by 0.2% and was no longer recorded by the ONS as being in recession, this was offset by a downward revision of the expansion in output of services from 1% to 0.9% for the final quarter.

According to the ONS, household expenditure rose by 0.4% in the final three months of 2004 – its slowest pace for nearly two years.

In a speech yesterday, Bank of England deputy governor Rachel Lomax said any weakness in consumer spending was likely to be temporary and pre-emptive action may need to be taken through raising interest rates.

Minutes from the February meeting of the nine-strong Monetary Policy Committee (MPC) showed one member voting for a rise in the cost of borrowing to 5%.

However, Investec economist Philip Shaw said data showing an unrevised estimate of GDP growth and a “subdued” rise in consumer spending would restrain some of the voices in the London market calling for higher interest rates.

Mr Shaw said: “It will take some considerable evidence to convince the MPC that it feels that domestic demand growth in general is running at too quick a pace.”