By Xinhua
London : The British economy grew by 3.1 percent for the whole of 2007, the fastest rate in three years, but growth slowed down in the last three months of the year as the credit squeeze took hold, according to the latest official data released Wednesday.
The economy grew just 0.6 percent between October to December last year, the lowest gain since the third quarter of 2006, as the credit squeeze hit the financial sector hard in the last quarter, the data from the Office for National Statistics showed.
According to analysts here, the slowdown in economic growth increases the likelihood that the Bank of England (central bank) will cut interest rates next month to 5.25 percent from the current 5.5 percent.
They said the possibility of a recession in the US was the main threat to Britain’s economic growth in 2008, predicting that British economy’s growth will continue to slow over the coming months in the face of major headwinds.
Meanwhile, Mervyn king, governor of the Bank of England, warned Wednesday that the British economy faces its toughest challenges since 1997.
Britain faced “a period of above-target inflation and a marked slowing in growth”, he told business leaders in Bristol, west of London, according to a BBC report.
“It means it’s going to be a pretty difficult year with slowing economic growth, unemployment rising but the cost of money not coming down as much as businesses and consumers would like,” the central bank governor was quoted as saying.
The governor warned that “2008 is likely to see higher energy prices, higher food prices and, with a lower exchange rate, higher import prices, pushing inflation above the 2 percent target”, saying it was “possible” that consumer price inflation, measured by the Consumer Price Index (CPI), would rise to 3 percent or more.
Despite the central bank warning that inflationary pressures remain, it is widely expected to cut rates to sooth economic jitters sparked by fears of a recession in the US and the knock-on impact this has had on Britain and other global stock markets.
The Bank of England’s rate-setting Monetary Policy Committee will meet Feb 6-7 to decide on the direction of interest rates from their current level of 5.5 percent.