Britain's economy met growth expectations in the first quarter as weakness in the service sector was overshadowed by expansion in industrial production, agriculture and construction for the first time in eight years.

First estimates of first-quarter gross domestic product from the Office for National Statistics revealed growth of 0.6 per cent, in line with the same period a year ago. The figure pushed the annual rate of GDP growth to 2.2 per cent from 1.8 per cent for 2005, in line with the expectations of the Bank of England's February Inflation Report.

Output from production industries, which includes mines and utilities as well as manufacturing, lifted 0.7 per cent overall, reflecting strong oil and gas extraction spurred by cold weather.

In contrast, the services sector, which accounts for more than two-thirds of the economy, expanded at 0.6 per cent over the quarter, sharply down from 1 per cent in the previous three months and at its lowest rate for more than a year as a slower retail sales hit growth.

"This is an extremely rare occurrence - the last time that the service sector was outperformed ... in any one quarter was at the start of 1998," George Buckley of Deutsche Bank said.

The shift could suggest the early stages of a rebalancing in the UK economy, with companies taking some of the burden for growth from consumers, analysts said.

Manufacturing output benefited from increased oil and gas output, growing 0.5 per cent overall over the three months, compared with a 1.1 per cent drop in the final quarter of last year.

The strong manufacturing figures supported yesterday's CBI Industrial Trends survey, which showed the strongest outlook for the sector in over a year, suggesting that the sector will see further improvements in 2006.

Analysts said the figures would support the Bank of England's "wait and see" policy on interest rates.

Gavin Redknap of Standard Chartered said: "We still see lower rates later in the year, but for now, with the economy growing at about trend and in a balanced manner, there are few reasons for policy to be altered in either direction."

However, the HSBC economist John Butler said members of the Bank's Monetary Policy Committee, which sets interest rates, appeared to differ on two key GDP issues: how much spare capacity currently existed in the economy and whether the consumer would lead the recovery.

"Our view remains that inflation pressures remain well-contained and that consumer spending faces a number of headwinds, from a squeeze in disposable income and a turndown in the labour market," Mr Butler said.

"A long period of interest rates stability will eventually be broken by an interest rate cut."

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