British economic growth slowed as expected in the second quarter of this year to its weakest rate in three years as private house building slumped, the Office for National Statistics said today.
The Office for National Statistics said GDP rose by 0.2 per cent in the three months to June, bringing the annual rate down to 1.6 per cent from 2.3 per cent in the first quarter.
Bank of England policymakers say they expect the economy to slow, perhaps sharply, this year and these figures are unlikely to settle the debate on which way interest rates should go or when given ongoing concerns about rising inflation.
Interest rates were held steady at 5 per cent for a third straight month in July, but one policymaker wanted to raise them while another thought a cut was needed to stave off recession.
The latest slowdown was driven by a 0.7 per cent fall in construction output - the biggest drop since third-quarter 2005 and the result of sharp declines in house building as a decade-long housing boom is swiftly reversing into a slump.
Construction output would have been even weaker, the ONS said, without an increase in government infrastructure projects.
House builders have announced more than 4,000 job cuts in recent weeks and are likely to remain under pressure as record low mortgage approvals point to further sharp falls in house prices.
The sector only accounts for 6 per cent of the economy but the much bigger service sector - which constitutes 74 per cent of GDP - has also slowed dramatically in the last few quarters.
Between April and June, services sector output rose by 0.4 per cent, putting it just 2.1 per cent higher on the same period a year ago. That was the weakest annual growth since 1992, when the economy was emerging from the last recession.
Within services industries, however, the transport, storage and communications category showed a 2.2 per cent jump in the quarter - the biggest rise since Q3 2000.