LONDON (AFP) - The British economy braked sharply in the third quarter when growth slowed to 0.4 percent, the weakest pace for over a year, as a string of interest rate rises took effect, official figures showed.
Growth in gross domestic product slowed from a quarterly rate of 0.9 percent seen in the second quarter of the year, largely because of a 1.1-percent slump in industrial output.
GDP rose by 3.0 percent in the three months to September from the same period of the previous year, according to a preliminary estimate from the National Statistics office.
That compared with a 3.6-percent blistering pace seen in the second quarter of 2004 -- the fastest for almost four years.
However, economists noted that the preliminary estimates tend to be revised upwards, and that the latest figure was based in large part on industrial output data because of a lack of other hard indicators.
"These figures should really be taken with a pinch of salt," said Stewart Robertson, economist at Lombard Street Research.
"There's no denying there was a little bit of a slowdown in the second half of this year, but the extent indicated by this apparent collapse is misleading," he added.
A raft of soft economic data in recent weeks has raised expectations that the Bank of England will leave interest rates unchanged at 4.75 percent for at least another month, as have comments from monetary policymakers.
The pound fell to 1.8250 dollars in the wake of the figures, from 1.8296 shortly before their release.
The central bank has hiked the cost of borrowing by a quarter point five times since November in an attempt to curb inflationary pressures stemming from consumer spending, booming house prices and above-trend economic growth.
However, data released Thursday cast doubt on the extent of the slowdown in consumer spending, with retail sales climbing by 1.0 percent in September from August, the fastest rate since January.
"I think it's fairly clear from the Bank's own stance they're going to sit and wait and see," said Robertson.
"I suspect that the next interest rate rise -- and I think that there will be at least one more -- won't be until the first half of next year."
The third quarter was the first since the first three months of 2003 that the economy has not grown above its 0.6-percent quarterly trend rate -- the rate of growth the Bank of England believes does not stoke price pressures.
HSBC economist John Butler agreed that interest rates in Britain looked likely to remain at 4.75 percent for the remainder of the year.
"Going forward, however, we expect much stronger growth in the fourth quarter and on that basis, together with rising cost pressures, believe it is too early to conclude that interest rates have necessarily peaked," he said.
The statistics office said the slower growth during the third quarter was mainly the result of a 1.1-percent fall in the output of the production industries following an increase of 1.2 percent in the second quarter.
The main influences behind the quarterly decline were output falls in manufacturing output and mining and quarrying. These more than offset increases in electricity, gas and water supply.
Industrial production accounts for around 22 percent of British economic output.
Service sector output, which accounts for around 72 percent of economic activity, held up better though, increasing by 0.8 percent, slightly lower than the 0.9 percent recorded in the second quarter.
10/22/2004 - 10:43 GMT - AFP