Slowing economy suggests rates may be at peak

The British economy cooled down over the summer according to official figures yesterday, raising the possibility that growth and interest rates have peaked.

The British economy cooled down over the summer according to official figures yesterday, raising the possibility that growth and interest rates have peaked.

But there was no estimate of the impact of the fuel protests on the economy, which some economists said might have caused a blip in an otherwise strong growth pattern.

The Office for National Statistics said GDP rose 0.7 per cent in the three months to September, down from 0.9 per cent in the previous quarter. Compared with a year ago growth is up 2.9 per cent, compared with 3.2 and 3.0 per cent in the first two quarters of the year.

The only breakdown given was for the booming service sector which surprised analysts with a fall in quarterly growth from 0.9 to 0.7 per cent. Its annual rate slipped to 3.3 from 3.5 per cent. Some economists said this would reassure the Monetary Policy Committee which earlier this month said it wanted to see a slowdown in consumer spending.

Jonathan Loynes, an economist at independent consultants Capital Economics, said: "Although this hardly indicates that the economy is grinding to a halt, it will come as a big relief. We still think rates have peaked."

Others cautioned against making an assessment until the impact of the fuel crisis was known. The minutes of the latest MPC meeting showed the Bank of England had estimated the crisis had shaved 0.2 per cent off growth, meaning third-quarter GDP was closer to 0.9 per cent. Philip Shaw at investment bank Investec said: "It is difficult to believe rates have peaked."

There were hints that the fuel crisis may have dented growth. The ONS said preliminary estimates pointed to a decline in growth in land-based transport services. This could be a sign of problems for haulage firms.

At the same time there was "strong growth" in transport support, which includes cargostorage, which may have benefited as companies found it impossible to move goods. But there was little sign of an impact on industry. The ONS said growth in manufacturing had accelerated on the back of strong growth in electrical and optical equipment makers.

The UK has enjoyed 33 successive quarters of growth since the trough of the last recession in the second quarter of 1992. Since then GDP has grown 27 per cent, led by the services sector on 34 per cent with manufacturing growing 12 per cent.

Further evidence of a slowdown came from the NTC Leading Indicator - a survey showing that business conditions were in their worst state for almost two decades.