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Tags: Britain | government | election

Britain's Recovery Slows Sharply in Pre-Election Setback for Government

Tuesday, 28 April 2015 07:51 AM EDT

Britain's economy slowed sharply in the first three months of 2015, a setback for Prime Minister David Cameron who has staked his campaign for re-election next week on the strength of the recovery.

Gross domestic product grew by 0.3 percent in the January-March period, the slowest quarterly rate since the end of 2012 when there were fears Britain was heading into recession.

Economists said the weakness was likely to be a blip, with the economy still on course for another strong year of growth.

But coming just nine days before what looks like being the closest national election in a generation, the numbers put Cameron's Conservatives on the back foot.

Finance minister George Osborne said the recovery could not be taken for granted and urged voters to stick with the Conservative Party.

"The future of our economy is on the ballot paper at this election," he said. "With rising instability abroad, now is the worst possible time to vote for instability at home."

But the opposition Labor Party seized on the data to challenge the Conservatives' claim to be trustworthy guardians of the economy.

"While the Tories have spent months patting themselves on the back, these figures show they have not fixed the economy," Labor's would-be finance minister Ed Balls said.

Labor has focused on what it calls a cost-of-living crisis. Wages have failed to keep pace with inflation throughout most of Cameron's five-year premiership.

Conservative campaigning has been dominated by references to the success of the government's "long-term economic plan" and on having another term in office to finish fixing Britain's public finances.

An opinion poll on Tuesday gave the Conservatives a one percentage-point lead over Labor, the latest in a string of polls pointing to deadlock in the campaign.

The preliminary reading of GDP is largely an estimate and the figures are often revised. The chief economist at the Office for National Statistics, Joe Grice, warned against reading too much into the data.

But the growth rate was half that of the last three months of 2014 and below the median forecast for only a marginal slowdown to 0.5 percent in a Reuters poll of economists.

British government bond prices rose and the pound briefly weakened against the dollar.



Britain's economy was 2.4 percent bigger than it was in the first quarter of last year, the ONS said. The Reuters poll had forecast annual growth of 2.6 percent.

The ONS said quarterly growth in Britain's dominant services sector slowed to 0.5 percent from 0.9 percent in the previous three-month period. Industrial output shrank slightly and construction contracted by 1.6 percent.

Strong private-sector surveys of business had led most economists to predict only a moderate slowdown.

Adam Ludlow, a senior consultant with polling firm ComRes, said on Monday that a very weak GDP reading would raise questions about the core message of the Conservatives.

He said a bad set of balance of payments announced just before an election in 1970 was seen as a big factor in the shock defeat of Labor's prime minister at the time, Harold Wilson.

"However, it could also raise the importance of the economy in voters' minds, above other things like the health service, and that could play into the Conservatives' hands," Ludlow said.

Britain's economy is now 4.0 percent larger than its peak before the financial crisis, and 8.4 percent bigger than when Cameron's Conservative-led coalition came to power in May 2010.

The weak first-quarter growth contrasts with an upbeat tone from the Bank of England at its latest monetary policy meeting, and most economists expect the economy to keep its momentum in 2015 after last year's growth of 2.8 percent.

"We think underlying growth in the economy is significantly stronger than in today's data," said Kevin Daly, an economist at Goldman Sachs and one of only two forecasters in the Reuters poll to predict the data correctly.

"We would anticipate over time that the weak ONS data is likely to be revised higher into line with the stronger activity implied by business surveys and other activity indicators."

But some economists have said an inconclusive outcome of next week's elections could hurt confidence and slow investment.

© 2023 Thomson/Reuters. All rights reserved.

Britain's economy slowed sharply in the first three months of 2015, a setback for Prime Minister David Cameron who has staked his campaign for re-election next week on the strength of the recovery.
Britain, government, election
Tuesday, 28 April 2015 07:51 AM
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