Growth in the British economy has slowed to its lowest level since 1998, official figures suggested yesterday.

Business leaders warned that the economy was stalling and the figures spelled "desperately bad news" for the UK.

The gross domestic product in the second quarter was only 0.3 per cent higher than the quarter before, the preliminary estimate showed.

That is the lowest quarterly growth rate since the end of 1998, when it was 0.2 per cent. But, in the City, analysts said the figures were in line with expectations - and if anything slightly better than feared.

Any slowdown in economic growth may have implications for Chancellor Gordon Brown's plans for a massive increase in public spending.

But the Treasury insisted the UK was still best placed to withstand a global economic slowdown.

Ian Fletcher, chief economist at the British Chambers of Commerce, said: "This is desperately bad news, showing clearly that the weakness in manufacturing is now feeding through to the wider economy.

"To prevent further stalling, and to boost confidence and investment, the Bank of England next week must apply the jump leads and cut interest rates by a quarter per cent."

Alex Scott, a fund manager at Barclays' Stockbrokers, said: "Everybody knew it was going to be low, it was a question of how low.

"They are marginally higher perhaps than we expected. I don't think there's anything to be too upset about in there."