The British economy grew at a steady pace in the first three months of 2006 as industry put in its strongest performance in 6-1/2 years, offsetting a sharp slowdown in the services sector due to flagging retail sales.
The Office for National Statistics said today that first-quarter GDP growth came in at 0.6 percent, the same as in the last three months of 2005, with the annual rate of growth edging up to 2.2 percent, in line with forecasts.
Still, some analysts had expected quarterly growth to accelerate and the pound weakened. But rate futures were unmoved by the data, which did little to settle the debate on where borrowing costs are headed next from their current 4.5 percent.
"Over the past six months GDP has been basically growing at trend and inflation is back around its target, which sits well with the perception that the UK is due for a period of stability on interest rates," said John Butler, UK economist at HSBC.
The ONS said first quarter growth was boosted by industrial output, which expanded at its strongest pace since the third quarter of 1999, helped by robust growth in oil and gas extraction, and energy supply thanks in part to cold weather.
But lacklustre retail sales held back the services sector, which makes up almost three quarters of the economy.
The ONS said output growth for services, which range from banks to hotels, slowed to its weakest pace in over a year.
However, economists said the services slowdown contrasted with upbeat surveys and reports from the High Street have been mixed.