UK economic growth slowest since 2005, NIESR says

The economy expanded 0.5 percent in the final quarter of 2007, compared with 0.7 percent in the three months through September, the London-based group, which advises the Bank of England and the Treasury, said in an e-mailed statement Saturday. That would be the slowest pace since the third quarter of 2005.

“This is a welcome moderation from a growth rate that has been persistently above trend for the past two years,” NIESR said in the statement. “We expect gross domestic product to be significantly below trend this year.”

The Bank of England may cut the benchmark interest rate further after reducing it from a six-year high in December, economists predict. Policy makers are weighing the need for lower borrowing costs as the economy slows, against the threat of inflation after oil costs reached US$100 a barrel this month.

The pound dropped to a record against the euro Friday as evidence mounted that economic growth is weakening. Manufacturers face the threat of slowing export demand as the U.S. skirts recession, while consumers at home grapple with a record 1.4 trillion pounds (US$2.7 trillion) in debt and falling house prices. UK manufacturing unexpectedly contracted 0.1 percent in November as production of consumer goods fell to a five-year low, the Office for National Statistics said Friday. That compared with a 0.3 percent increase in October. Economists had forecast a 0.1 percent gain in November, according to the median of 27 estimates in a Bloomberg News survey.

The manufacturing report “is signaling some moderation in economic activity and continues the idea that the UK is on a slowing trend,” Paul Donovan, deputy head of global economics at UBS AG in London, said Friday.

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