Economy grew 0.5 pct in first quarter

Undated file photo of pound coins. REUTERS/File

LONDON (Reuters) - The economy probably grew 0.5 percent in first three months of 2007 but lingering price pressures mean an interest rate hike is required, the National Institute of Economic and Social Research said on Friday.

NIESR said lower rates of growth in both public and private sector services have contributed to the recent slowing in economic growth. The three-month measure of GDP expansion has eased steadily from 0.7 percent in December.

“Despite the deceleration of economic growth an interest rate increase is needed because of the presence of underlying inflationary pressure in the economy,” NIESR said in a statement written before Thursday’s rate decision.

The Bank of England Monetary Policy Committee voted to keep interest rates steady at 5.25 percent this month, but many economist foresee a 25 basis point hike in May.