Britain's economic growth slowed for the first time in a year during the first quarter as industrial production slumped. Retail sales in March grew three times the pace economists had expected. Gross domestic product rose 0.6 percent in the first three months of the year after an 0.9 percent gain in the fourth quarter. Economists had expected 0.7 percent growth. A separate report showed retail sales rose 0.6 percent in March, more than the 0.2 percent economists had expected.
The figures take growth in Europe's second-biggest economy back to the level the Bank of England says is compatible with stable inflation and may reduce the chance of a rate interest rise next month. Factory production fell unexpectedly in February and failed to grow in January. Manufacturers including the bus- maker Mayflower Corp., and Marconi Corp., which produces mobile phone equipment, have said sales fell. ``It's basically healthy economic growth in the first quarter,'' said Martin McMahon, an economist at Lombard Street Research in London, who predicts the government will revise higher its GDP estimate. ``Things are still on the up and domestic demand needs to be reined in.'' The government said this month's GDP estimate, the first of three, is based on fewer survey responses than it usually gets because the Easter holiday delayed responses from companies. It said this quarter's figures are more likely than usual to be revised, though statisticians said they couldn't indicate which way the revisions might be made.
Market Reaction
Futures markets suggested rate rises later this year are less likely. The yield on three-month rate futures maturing in December fell to 4.85 percent at 9:45 a.m. in London from 4.87 percent yesterday. The pound rose 1.1 cents to $1.7790 after the report, reflecting the quicker than expected retail sales growth. ``The rate rise had looked like a done deal and it's not now,'' said Ciaran Barr, chief U.K. economist at Deutsche Bank AG in London, which still forecasts a rate increase in May. The GDP figures ``breaks the run of very strong figures we've been seeing, which argues for no change.'' Britain is the first of the Group of Seven industrial nations to report first-quarter GDP figures. From a year ago, growth accelerated to 3 percent in the first three months of the year, the most since the third quarter of 2000, compared with a 2.7 percent gain in the fourth quarter. Economists had expected growth of 3.1 percent from a year ago.
Retail Gains
Retail sales rose 6.4 percent from a year ago last month after an 6.5 percent gain in February. Economists had expected shop sales to gain 0.2 percent in the month and 5.9 percent from a year ago. Retail sales haven't declined since May. The run of 10 months of gains is the longest in at least 18 years. Growth was buoyed by faster sales of household goods, which rose 9.1 percent from a year ago in March, the most since November 2002. Sales at stores listed as ``other'' retailers , which include pharmacies and bookshops, jumped 10.1 percent last month, the most since May 2002. Tesco, the nation's biggest supermarket chain, said its profit rose 17 percent in the half-year through Feb. 17 as it opened new stores and built up its distribution system. Carpetright, the nation's biggest carpet retailer, said revenues rose 4.2 percent in the past six months after the company cut prices.
Rate Decision
All except one of the 40 economists surveyed by Bloomberg last week predicted the central bank will increase rates on May 6. Policy makers raised their benchmark rate twice since November to 4 percent from a 48-year low of 3.5 percent, saying quicker growth may boost inflation. ``The next GDP estimate in around a month's time could well report an upward revision,'' said Ross Walker, an economist at Royal Bank of Scotland in London. ``A quarter percentage point rate hike in May remains more likely than not, but the odds have shifted to say 60/40 from 70/30.'' Industry contracted more quickly in the most recent period. Industrial output dropped 0.5 percent in the first quarter after an 0.1 percent decline in the fourth. That's the biggest drop since the fourth quarter of 2002. Industry has grown only one quarter in the past 13. Service industries expanded 0.8 percent in the first quarter, compared with 1 percent in the previous three months. British Airways, Europe's biggest airline, said passenger traffic rose 12.7 percent in March, the 11th consecutive monthly gain. Airport operator BAA Plc said its passenger count rose 10.4 percent last month.
Growth Abroad
In the U.S., economic growth probably accelerated to an annualised 5 percent in the first quarter from 4.1 percent in the fourth, according to the median forecast of 46 economists surveyed by Bloomberg News. Those figures are due on April 29. In the dozen euro nations, growth will range between 0.3 percent and 0.7 percent in the first two quarters of this year, the European Commission estimates. The central bank's interest-rate setting committee voted 8-1 to leave rates unchanged in March and April after increases in November and February. Committee members said that a rise in the value of the pound may help to keep inflation down, according to minutes of their meeting published this week.
The pound has risen 3.6 percent since the beginning of the year against a basket of other currencies weighted according to U.K. trading patterns. U.K. inflation slipped to 1.1 percent in March, the lowest rate in nine months. Surging house-price growth has underpinned U.K. consumers' borrowing and spending. Home values grew 18.5 percent in the first quarter from a year earlier, according to HBOS Plc, the nation's largest mortgage lender. Mortgage borrowing has also jumped prompting concern among Bank of England's policy makers including Andrew Large. ///www.bloomberg.com