Economy Slows - But Growth Hits 7-Year High

The UK economy grew at its fastest rate for seven years in 2014, but official figures highlight a sharper slowdown in the final quarter than had been expected.

With the economy growing by 2.6% in 2014, Britain is on track to have the world's fastest growing major economy last year.

But gross domestic product (GDP) rose by just 0.5% in the fourth quarter, the weakest level in a year.

It was weighed down by a construction sector which shrunk 1.8% - its worst pace for more than two years - and a contraction of almost 3% in energy supply, as warm weather persisted and power generation was hit.

The performance meant that annual growth for 2014 fell short of the 3% forecast just last month by the independent Office for Budget Responsibility (OBR).

But GDP is now 3.4% higher than its pre-recession peak, according to the Office for National Statistics (ONS).

The services sector, which represents more than three-quarters of output, grew by 0.8% as consumers spent more in the run-up to Christmas as wage growth outpaced inflation amid a supermarket price war.

The economy is the main battleground going into the General Election, which is now 100 days away , and the ONS said it was unable to say whether the weaker output in Q4 was a worrying sign for the Chancellor.

ONS chief economist Joe Grice said: "The dominant services sector remains buoyant while the contraction has taken place in industries like construction, mining and energy supply, which can be erratic."

George Osborne said: "Today's figures confirm that the recovery is on track and our plan is protecting Britain from the economic storm, with the fastest growth of any major economy in 2014.

"But the international climate is getting worse, and with 100 days to go until the election now is not the time to abandon that plan and return Britain to economic chaos."

Economists see the recovery being supported in the coming months by low inflation - aided particularly by falling oil costs - and the fact that the Bank of England is unlikely to raise the base rate of interest this year.

Much depends though on the health of the world economy, with the country's biggest trading partner, the eurozone, not due to begin its quantitative easing programme to stimulate activity until March.

Shadow chancellor Ed Balls said: "Tory claims that the economy is fixed will ring hollow with working people who are still not feeling the recovery.

"Wages are down by £1,600 a year since 2010 and now these figures show a concerning slowdown in economic growth too.

"Construction is down again, business investment under this government is lagging behind our competitors and exports are way off target.

"And the stagnating wages we have seen over the last five years are the reason why the Chancellor has broken his promise to balance the books."