The Bank of England yesterday left interest rates unchanged for the ninth month in a row amid mounting fears that UK economic growth is slowing sharply.

The widely expected move came after industrial output contracted in the first quarter to hit its lowest level for almost nine years.

Output by UK factories fell 1.6 per cent in March, marking an end to the sector's recovery that began in 2003.

The weakness adds to concerns that the centre-left Labour government is going to face a much less favourable economic backdrop in its third term in office than during its first two.

Over the past few years, the UK economy has outperformed its European peers thanks in part to buoyant consumer spending.

But household expenditure slowed sharply at the end of last year and, together with weaker industrial output, points to increasingly sluggish economic growth.

The UK's National Institute for Economic and Social Research estimates gross domestic product was 2.5 per cent higher in April than a year earlier. This compares with growth of 3.1 per cent in 2004 and government forecasts of 3-3.5 per cent for 2005.

In the light of this weakening outlook, the Bank of England yesterday kept the cost of borrowing stable at 4.75 per cent in spite of mounting inflationary pressures.

Consumer price inflation brushed a seven-year high in March when it reached 1.9 per cent, close to the Bank's 2 per cent target. But in response to weaker economic data, financial markets have shifted away from predicting a rate increase and now project a rate cut by the end of the year.

In contrast, German manufacturing remained relatively robust in March, with official figures yesterday showing a 0.3 per cent rise compared with the previous month. - (Financial Times Service)