UK likely to miss 2.75pc growth target

Published December 22, 2006

LONDON, Dec 21: The Office for National Statistics (ONS) said on Thursday that growth in the UK in the year to the end-September stood at 2.9 per cent and experts said a sharp and unexpected slowdown in the economy in the final three months of 2006 would prevent the government from meeting its 2.75 per cent growth target.

Gross domestic product in the third quarter alone rose by 0.7 per cent unchanged from earlier estimates — but the ONS said growth over the year as a whole was now thought to be slightly stronger than its earlier assessment of 2.7 per cent growth.

Meanwhile, inflation has soared to its highest level for over a decade, as the ONS said the consumer price index jumped from 2.4 per cent to 2.7 per cent in November fuelling fears that the Bank of England will soon raise interest rates to 5.25 per cent.

The strength of the GDP data has also fuelled expectations that interest rates will rise in the New Year, with February seen as the likeliest month for an increase.

Sterling was strong on the foreign exchanges on Thursday morning ahead of the release of the figures.

In separate data, the ONS said that the UK's current account deficit widened in the third quarter from £8.2 billion to £9.4 billion. A deficit of £20.5 billion in visible trade was partly offset by a surplus in services of £7.2 billion and by the UK's overseas investments, worth £6.6 billion to the current account over the previous period.

It is the highest annual increase in the inflation measure since November 1995, and brings it closer to the three per cent level at which the Bank of England Governor, Mervyn King, would have to write a letter of explanation to the Chancellor.

The ONS said the CPI had been lifted higher by petrol costs and utility bills, which are rising at the fastest rate in 26 years.

The Retail Price Index (RPI), the measure formerly used as a target by the Bank, and which includes mortgage costs and some extra items not in the CPI, rose from 3.7 per cent to 3.9 per cent - the highest level since 1998.

The so-called fuel and light component of RPI rose by 29.5 per cent in the year to November, the ONS said. Gas and electricity suppliers have hiked prices dramatically in the past year in order to offset rising wholesale prices. The increase is the biggest since June 1980.

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