Instant Analysis - Q1 GDP weaker than expected

LONDON (Reuters) - The economy grew at a slower pace than expected in the first three months of this year, as the harshest winter weather in 30 years hit retail and industrial production, official data showed on Friday.

The figures are likely to reinforce the Labour Party's contention that the economic recovery remains too fragile for fiscal tightening of the scale being proposed by the opposition Conservatives ahead of a May 6 national election.

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ANALYSTS VIEWS

HETAL MEHTA, ERNST & YOUNG

"Today's preliminary estimate is once again slightly below expectations, and also out of synch with what the surveys have been reporting. Based on the revisions we have seen to the preliminary estimates in recent quarters, there is a fair chance of an upward revision.

"Yet, it does seem that following the bounce back in February from the fall in output in January, momentum in the economy is waning.

"Downside risks to economic growth remain, not least the extent of the fiscal tightening we will see after the election. We maintain that growth this year will be around 1%."

HOWARD ARCHER, GLOBAL INSIGHT

"While GDP growth in the first quarter of 2010 came in below expectations at 0.2% quarter-on-quarter and was down from expansion of 0.4% in the fourth quarter of 2009, this is not in itself overly worrying.

"Overall growth in the first quarter was clearly dragged down appreciably by the very bad weather in January, and most indicators suggest that there has been a marked pick up in activity since then.

"The GDP data can be used as ammunition by politicians of all sides as they push for support in the May 6 general election.

"The opposition parties can try and blame the government for the UK's recovery being only gradual after a particularly deep recession, while Gordon Brown and the Labour Party can argue that the fragility of the upturn argues against any early extra tightening of fiscal policy as favoured by the Conservatives."

JONATHAN LOYNES, CAPITAL ECONOMICS

"Q1's UK GDP figures are a clear disappointment for the economic outlook, but their political implications are ambiguous.

"Of course, there is a good chance that the estimate will be revised higher, as in recent quarters, but that obviously won't happen until after the election.

"On the face of it, the numbers are a blow to the government. But it will no doubt argue that the weakness of the recovery undermines the Conservatives' plans to implement an earlier and bigger fiscal tightening.

"Either way, the figures underline again the fragility of the economic outlook. With a big fiscal squeeze coming under any form of government, monetary policy needs to remain extremely supportive."

ROSS WALKER, RBS FINANCIAL MARKETS

"I'm slightly surprised it is as weak as it is. It is really the services side ... we thought the adverse weather in January would hit construction and agriculture so the services number is a little bit disappointing."

"It is not a disaster but I think the overall story is that this economy is not powering its way out of the blocks, this reinforces my view that we are going to get a very sluggish recovery."

"A formal double dip, negative quarterly outturns, I think is doubtful. There seems to be enough momentum in the surveys but we are still some way from trend growth."

"I think we will see ongoing growth but it is going to be somewhat begrudging."

STEPHEN LEWIS, MONUMENT SECURITIES

"Not entirely surprising. I think that the surprise maybe for the market was the relative weakness in service sectors, especially distribution, hotels and catering. Apart from that the production industry's contribution is broadly as expected. construction was weaker but that was probably weather conditions."

MICHAEL SAUNDERS, CITI

"The GDP data shows activity was hit hard by the persistent snow in January and early February.

"The figures has come in line with our forecast. The consensus forecast did not allow enough for the snow disruption."

PHILIP SHAW, INVESTEC

"The figures are below consensus but that's not exactly a nw development. Over the last year or 18 months, markets have learned to treat these first estimates with kid-gloves.

"It's true the snow did depress services and manufacturing in the first part of the period and it's likely that the underlying pace of recovery is greater than these figures suggest."