Slowdown in growth adds to pressure on Bank

WEAKNESS in the UK's economic growth will be exposed this morning when official data lays out the state-of-play as the nation enters the "age of austerity".

The Office for National Statistics (ONS) is expected to reveal the rate of GDP growth - a broad measure for the health of the total economy - slowed to about 0.4 per cent in the three months to December.

The figures come after Bank of England monetary policy committee (MPC) member Andrew Sentance last night renewed his call for the central bank to act now to raise interest rates in order to bring inflation under control and boost GDP growth.

Britain's economy grew by 0.7 per cent in the previous three months and 1.1 per cent in the second quarter.

The end of the construction bounce-back - which has boosted growth in previous quarters - and the impact of the snow on economic activity in December are both expected to hit GDP in the quarter.

But Howard Archer, chief UK and European economist at IHS Global Insight, said there was considerable uncertainty over how much December's severe weather hit overall activity, so the range of forecasts is quite wide, from 0.2 per cent to 0.6 per cent.

Archer warned dismal retail figures for December released on Friday could see GDP undershoot his forecast of 0.4 per cent.

Chancellor George Osborne unveiled an 81 billion package of spending cuts - leading to hundreds of thousands of job losses - last year to tackle the creaking public finances and push the UK into what has been dubbed the "age of austerity".

The ONS will today also release public borrowing figures for December, which are likely to reveal Britain fell further into the red by 21bn, leading to a total for the financial year to date of around 125bn.

Weaker-than-expected GDP growth figures will throw weight behind the argument against an interest rate hike, which is becoming increasingly likely as stubbornly-high inflation continues to soar.

Last week, the ONS revealed the consumer prices index (CPI) rate of inflation rose to 3.7 per cent in December, pushed higher by rising food and petrol bills.

In a speech to the European Policy Forum in London last night, Sentance said: "When it is clear that global inflationary pressures, coupled with a substantial decline in the exchange rate and reasonably healthy growth of domestic demand are all contributing to a sustained period of above-target inflation, then the time has come to act.

"If we do not start to raise UK interest rates gradually soon, we risk having to do so more aggressively in the future - which could create a big shock to business and consumer confidence further down the track".

Bank of England governor Mervyn King is expected to discuss his concerns over inflation in a speech in Newcastle tonight.