All about business

The U.K. economy grew at the weakest annual pace since 1992 in the second quarter as the financial crisis curbed investment, construction and industrial production.

Gross domestic product rose 1.5 percent from a year earlier, the Office for National Statistics said in London today. That exceeded the previous estimate of 1.4 percent, which was the median forecast of 29 economists in a Bloomberg News survey. On the quarter, the economy didn't expand, as initially measured.

Prime Minister Gordon Brown's government seized Bradford & Bingley Plc and helped rescue HBOS Plc this month after the crisis undermined both mortgage lenders and threatened to worsen the economic downturn. The Bank of England has still refrained from cutting interest rates to support growth after inflation accelerated to the fastest pace in at least a decade.

“It's not a very good set of figures, the economy is heading toward a recession,'' said Howard Archer, chief European economist at Global Insight Inc. in London. “We were looking for a rate cut in November, but increasingly we're leaning to next week.''

The Bank of England kept its benchmark interest rate at 5 percent for a fifth month on Sept. 4. It lowered the rate three times until April.

The Bradford & Bingley action yesterday prompted the pound's biggest one-day drop against the dollar in 16 years. The currency traded at $1.8067 today in London.

Brown's Pledge

Brown said yesterday the government will work “night and day'' to preserve the stability of the banking system. His handling of the crisis helped narrow the Conservatives' lead to 9 points from 15 points a month earlier, according to an ICM Ltd cash advance loan. poll finished Sept. 25.

The statistics office said today that services grew 0.2 percent from the first quarter, the weakest pace since 1995. Industrial production dropped 0.7 percent, revised up from the 0.8 percent estimated previously and construction fell 0.5 percent, compared with the 1.1 percent decline initially measured.

Fixed investment fell 2.8 percent, compared with a previous estimate of 5.3 percent. Business spending fell 1 percent on the quarter. Government spending rose 0.5 percent, instead of 0.4 percent in the initial measure.

The current account deficit widened to 11 billion pounds ($19.8 billion), the largest in three quarters, the statistics office said in a separate report today.

Rate Forecasts

Market turmoil has bolstered the case for the central bank to resume rate cuts as record oil and food prices stoked inflation, which reached 4.7 percent in August. Economists Michael Saunders at Citigroup Inc. and Alan Clarke at BNP Paribas on Sept. 26 pulled forward predictions for the next rate reduction to as soon as October.

David Kern, economic adviser at the British Chambers of Commerce, yesterday called for policy makers to consider a half- point reduction in the benchmark interest rate, saying “threats to the economy are mounting and we need urgent action.''

Eight of the nine-member Monetary Policy Committee voted to leave the key interest rate unchanged this month as they weighed the growth outlook against faster inflation. The bank makes its next interest-rate decision on Oct. 9.

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