London, April 25 (Bloomberg) -- The U.K. economy expanded at the slowest pace in a year in the first quarter as consumers spent less on services from banks to hotels and restaurants. Gross domestic product rose a smaller-than-expected 0.2 percent, compared with the final three months of last year when the economy grew 0.4 percent, the government's preliminary estimate showed. Analysts predicted growth of 0.3 percent. Consumer spending has supported growth in Europe's second- largest economy. Services, which account for two-thirds of GDP, expanded 0.3 percent in the first quarter, the weakest pace in a year. Chubb Plc, the world's third-largest provider of security services, said this week first-half results will be ``well below'' its expectations. ``The number of shoppers is lower than this time last year; it's as simple as that,'' said Mark Millward, head of consulting at Footfall Ltd., which measures how many consumers visit U.K. stores including Marks and Spencer Group Plc. U.K. government bonds rose for a third day after the report. The 5 percent gilt due March 2012 rose 0.07, or 70 pence per 1,000-pound face amount, to 104.75. Its yield fell 1 basis point to 4.35 percent. A basis point is 0.01 percentage point. The British pound fell for the first day in four against the dollar. It dropped to $1.5890 at 9:45 a.m. in London from $1.5963 yesterday. It was trading at 69.19 pence per euro from 69.12.
Brown's Forecast
Chancellor of the Exchequer Gordon Brown this month trimmed his GDP growth forecast for this year by a half-point to between 2 percent and 2.5 percent, while leaving his prediction for next year of growth as much as 3.5 percent. Analysts say the new forecasts may still be too optimistic. ``No country can be immune from the global events of recent months'' including falling stock markets, oil price changes and the conflict in Iraq, the Treasury said in a statement issued after today's report. The GDP report ``makes things tricky for Brown,'' said David Page, an economist at Investec Bank U.K. Ltd., who today lowered his 2003 GDP forecast to 2 percent. ``This will also alarm the Bank of England that consumer spending is slowing at too fast a pace.'' He predicted a quarter-point rate cut in May. Analysts expect expansion of about 2 percent this year and 2.4 percent in 2004. The U.K. central bank will issue its own forecasts next month, when most analysts expect it to reduce interest rates for a second time this year. Futures markets indicate investors are betting on another interest rate reduction by the middle of the year, though expectations have receded somewhat. The rate on a three-month sterling deposit maturing in June was 3.53 percent today, compared with 3.46 percent three weeks ago.
`Pretty Uniform'
The ``deceleration'' in services growth in the first quarter was ``pretty uniform,'' said Geoff Reed, a government statistician. There was little change in transport and communication, and growth was subdued in business services and finance. Hotels, catering and distribution businesses expanded 0.3 percent. Intercontinental Hotels Group Plc, the world's second- largest hotelier by rooms, said profit fell ``substantially' between January and March as a deadly new virus in Asia, war in Iraq and weak economies kept travelers at home. Industrial output, which comprises manufacturing, utilities and mining, is estimated to have fallen in the first quarter because of a decline in oil and gas, the government said. Figures will be released next month. Manufacturing Manufacturing, which accounts for a fifth of the economy, grew in the January-March period following declines in the previous two years. Construction output is estimated to have increased ``strongly,'' the government said. ``The household sector is looking increasingly fragile, while it is premature to say that the upturn in manufacturing is durable,'' said James Knightley, an economist at ING Bank NV in London. He predicted second-quarter growth would be `` even weaker,'' increasing pressure on the Bank of England to reduce interest rates again, he said. Retail sales showed ``some growth'' in the first quarter, the government said. The estimate is based on data to the end of February and an early estimate for March. The government previously reported retail sales fell in the first two months of the year. Figures for March will be released on Tuesday. Economists surveyed before the report predicted retail sales fell in the January-March period, the first quarterly contraction since the second quarter of 1998. Retailers such as Marks & Spencer, Britain's No. 1 clothing seller, and J Sainsbury Plc, the country's second-largest supermarket chain, reported slowing sales growth this month. W.H. Smith Plc, the country's biggest bookseller, said last week first- half profit dropped by more than a fifth. Household confidence plunged to an almost eight-year low in March. Rising unemployment and weaker wage growth may further deter people from spending in the months ahead, analysts said. Jobless claims rose for a second month in March, the first back-to-back increase in more than a year, and U.K. average earnings growth weakened to the lowest in a year in the three months through February, the government said last week.//www.bloomberg.com