• March figure rises by less than than half of City forecasts
• NIESR estimates GDP growth to April at just 0.3%
• Manufacturing up 0.2% after flat February
Britain's economy showed further signs of faltering last month, adding to fears that government spending cuts and a slowdown in global growth have increased the risk of a double dip recession.
The National Institute of Economic and Social Research said the UK's national income grew by just 0.3% in the three months to April – a marked slowdown from the 1.1% achieved last summer.
The disappointing slump in growth was echoed by figures from the UK and the eurozone that showed the sector credited with pulling most western economies out of recession was losing momentum. Industrial production, which includes mining and fossil fuel extraction, rose by 0.3% in March, following a 1.2% fall in February, the Office for National Statistics said. This was less than half the 0.8% rise forecast in the City.
Manufacturing output was also worse than expected, rising 0.2% on the month after a flat reading in February. The main areas of growth were the paper, printing and publishing industries.
The NIESR said: "Such a weak growth rate is a continuation of the UK's relatively weak recovery. GDP growth continues to be below trend, implying a widening rather than narrowing output gap."
In the eurozone, the industrial production figures went into reverse, falling by 0.2% following a 0.6% rise in February.
"With UK exports to non-EU countries languishing, British manufacturing is now at risk of backsliding on the real gains the industry has made over the last 18 months," said Mark Lee, head of manufacturing at Barclays Corporate.
The ONS said the figures mean that industrial growth was just 0.2% in the first quarter of this year, compared with an initial estimate of 0.4%. It added, though, that this would only have a "minimal" impact on the official preliminary estimate that GDP rose by 0.5% in the first quarter of 2011.
Exports have continued to grow throughout the year, but sales of manufactured goods within the UK have become depressed following a slump in consumer confidence. A series of surveys have shown a sharp decline in the number of households that believe the economic situation will improve this year.
Economists said the latest industrial production figures suggested that the sector would struggle to repeat its strong growth at the start of 2011.
"Wednesday's trade figures revealed that goods exports grew very strongly in the first quarter, so today's weak figure for manufacturing suggests that domestic demand in Q1 was exceptionally weak," said Nida Ali, economic adviser to the Ernst & Young Item Club forecasting group. "This is a genuine cause for concern and adds to the uncertainty regarding the outlook."
Hetal Mehta, UK economist at Daiwa Capital Markets, said: "It appears that manufacturing growth is moderating back to more 'normal' levels, and looking ahead, the sector is likely to make a smaller contribution to GDP growth than in recent quarters. However, the fortunes of the economy will be far more heavily reliant on developments in the services sector. And on that front, there is precious little in the way of good news."
In the eurozone, there were similar fears. Ken Wattret, chief eurozone economist at BNP Paribas, said: "The market is currently debating if there is a softer patch for activity, and on the basis of the industrial production number for March it looks as if there could be some mileage in that story. Could be related to the oil price, could be related to developments in Japan, but it looks like the momentum is beginning to ebb."