April 23, 2010 / 9:36 AM / 7 years ago

UPDATE 1-UK GDP growth weakens unexpectedly after icy weather

* Q1 GDP growth slows to 0.2 pct q/q from Q4's 0.4 pct

* Labour, Conservatives swap jibes over recovery

* Sterling falls after weaker than expected outturn

* Retail, hotels and restaurants act as drag on output

(Adds quotes, details)

By David Milliken and Fiona Shaikh

LONDON, April 23 (Reuters) - Britain's economy grew at a slower pace than expected in the first three months of this year as the harshest winter weather in 30 years hit hard, official data showed on Friday.

The Office for National Statistics said GDP grew by 0.2 percent in the first quarter, half the 0.4 percent rate forecast by analysts, who had expected a repeat of the pace of growth seen in the last three months of 2009.

The figures gave the ruling Labour Party a chance to reprise its charge that economic recovery remains too fragile for fiscal tightening of the scale being proposed by the opposition Conservatives in campaigning for a May 6 national election.

The data will also support expectations that the Bank of England will hold interest rates at their record low rate of 0.5 percent until the strength of the recovery becomes clearer.

Sterling weakened by almost half a cent versus the dollar GBP= and by a quarter of a cent against the euro EURGBP=.

Prime Minister Gordon Brown said recovery was under way but it could be threatened by Conservative policies.

"The dangers of the Conservative policy of cutting ... 6,000 million pounds out of the economy as they propose for an emergency budget in June are as grave as they are ill-judged," he told a news conference.

Conservative finance spokesman George Osborne, on Sky Television, countered: "We now have this jobless recovery from this weak government."

Year-on-year, GDP contracted by 0.3 percent, the smallest decline since the third quarter of 2008.

Britain suffered its deepest downturn since at least the 1930s in the 18 months to September 2009, losing more than 6 percent of economic output.

The ONS said there was anecdotal evidence that harsh winter weather, the worst in 30 years, depressed output from both the retail sector and industry in the first quarter of this year.

"It is not a disaster but I think the overall story is that this economy is not powering its way out of the blocks. This reinforces my view that we are going to get a very sluggish recovery," said Ross Walker, economist at Royal Bank of Scotland. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graphic on GDP, click on: r.reuters.com/sub29j ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

REVISIONS TO COME?

The 0.2 percent overall GDP growth was at the bottom of the range of forecasts from a Reuters poll of 33 economists, and analysts noted that the ONS's preliminary estimates of GDP were frequently revised higher.

An initial reading of 0.1 percent growth for the last quarter of 2009 eventually ended up at 0.4 percent.

"Over the last year or 18 months, markets have learned to treat these first estimates with kid gloves," said Philip Shaw, economist at Investec.

"It's true the snow did depress services and manufacturing in the first part of the period ... it's likely that the underlying pace of recovery is greater than these figures suggest."

Friday's preliminary data showed distribution, hotels and restaurants -- which includes retail and makes up 15 percent of the economy -- bore the brunt of the bad weather and contracted by 0.7 percent, the biggest drop since the first quarter of 2009.

However, business services and finance -- which accounts for 30 percent of the economy -- grew by 0.6 percent, its best performance in two years, providing the lion's share of total GDP growth in the first quarter.

The overall service sector, three quarters of the economy, expanded at less than half its pace of late 2009, growing by just 0.2 percent in the first quarter.

While quarterly manufacturing growth slowed to 0.7 percent from 0.8 percent, the broader industrial production measure grew by 0.7 percent on the quarter, its strongest pace in four years. (Reporting by David Milliken and Fiona Shaikh, editing by Mike Peacock)

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