LONDON (Reuters UK) - The economy grew more slowly than previously thought in the first quarter as the service sector recorded its weakest performance in more than a decade, official figures showed on Friday.
The Office for National Statistics said GDP rose by 0.3 percent on the quarter, revised down from 0.4 percent. That was the weakest rate in 3 years. The annual rate was also marked lower to 2.3 percent from 2.5 percent.
Analysts had predicted no revisions and sterling fell after the report as investors scaled back bets the Bank of England would raise interest rates this year to combat above-target inflation.
"It's not a positive report at all," said George Buckley, chief economist at Deutsche Bank.
The service sector, which makes up around three-quarters of the economy, grew by just 0.3 percent, its weakest rate since the fourth quarter of 1995.
Household consumption rose by a healthy 1.1 percent but this is expected to slow over the coming months, especially as real disposable income fell by 1.0 percent, the biggest drop since the third quarter of 1999.
Consumers are clearly running down their savings to maintain their spending habits. The savings ratio fell to 1.1 percent, its weakest since the fourth quarter of 1959.
Separately, the ONS released first quarter balance of payments data showing a current account deficit of 8.4 billion pounds from a revised 12.2 billion pound gap in the fourth quarter of 2007.
The deficit was lower than expected as the surplus on income rose as banks increased their margins to repair battered balance sheets.
