LONDON (AFP) - The economy stumbled badly during the first three months of 2008, recording the lowest quarterly expansion for three years amid the global credit crunch and a slowing property market.

Gross domestic product (GDP) expanded by just 0.3 percent in the first quarter of 2008 compared with the final three months of 2007, according to the Office for National Statistics (ONS).

GDP grew by 2.3 percent during the first quarter when compared with the year-earlier period, it added. The services sector performed particularly badly.

The figures were revised down from data published in May, when the ONS said GDP growth had stood at 0.4 and 2.5 percent respectively.

"The figures paint a pretty worrying picture," said Jonathan Loynes, chief European economist at consultancy Capital Economics.

"With growth already so weak in the first quarter before the full effects of the credit crunch and housing downturn had been felt, the economy looks set to slow significantly further over coming quarters."

He added: "We now expect GDP growth to slow to just 0.5 percent in 2009, with a very real chance of a technical recession." A recession is defined as two successive quarters of negative economic growth.

The latest first-quarter estimates compared with analysts' consensus forecasts for no change on both readings.

Global Insight economist Howard Archer said that despite the weak data the Bank of England (BoE) was likely to avoid cutting interest rates this year because it was also trying to tackle high inflation.

"Any cut in interest rates now looks unlikely until 2009, unless the economy really falls off a cliff over the coming months," Archer said.

"With consumer price inflation set to exceed 4 percent later this year ... the Bank of England will tread extremely carefully on the interest rate path."

The BoE's chief task is to keep annual consumer price inflation close to a 2 percent target.

Inflation hit a 16-year high of 3.3 percent in May, driven by soaring food and energy costs prices, according to recent official data.

Earlier this month, the BoE held its key interest rate at 5 percent amid heightened fears about rising inflation despite slower growth which has been hampered by the ongoing credit squeeze.

However, Investec economist Philip Shaw said that doubts remained about whether the British economy would avoid a recession.

"Today's GDP figures open up the possibility that growth will continue to weaken ... and although we take the view that the economy will avoid a recession, our confidence is ebbing," Shaw said.

He added: "Speculation over a recession, coupled with the likelihood of a further 1.0-percent increase in inflation over the next three to four months, will make for a very uncomfortable summer."

Office for National Statistics growth data

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