Finance / Slowdown in UK economy worse than expected as consumers tighten belts

Slowdown in UK economy worse than expected as consumers tighten belts

The UK economy endured a worse-than-expected slowdown in the first three months of the year as sliding retail sales and a jump in living costs took its toll on growth.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.3% in its initial estimate for the first quarter of 2017, down from 0.7% in the fourth quarter of last year.

Economists had been expecting GDP growth to slow as consumers tightened their belts in the face of rising inflation, but they had pencilled in a higher growth figure of 0.4%.

The ONS said: "There were falls in several important consumer-focused industries, such as retail sales and accommodation; this was due in part to prices increasing more than spending."

Britain's powerhouse services sector, which accounts for 78% of the UK economy, put downward pressure on overall growth after expanding by 0.3% between January and March this year, slowing from 0.8% between October and December of 2016.

The main drag came from the hotels, restaurants and distributions sector, which fell by 0.5%, as increasing prices from rising inflation applied the brakes to retail trade and accommodation services growth.

Output in the construction sector was also dragging on GDP after expanding by 0.2% in the first three months of the year following 1% growth in the fourth quarter of 2016.

Production expanded by 0.3% over the period, with manufacturing increasing by 0.5% thanks to a jump in motor vehicle manufacturing, while agriculture growth eased to 0.3% in the first quarter from 1% in the final quarter of 2016.

It means GDP grew by 2.1% in the first quarter of 2017 compared with the first three months of last year.

This comes as separate figures for the index of services showed output climbed by 0.2% between January and February, following a 0.1% decline between December and January.

Consumers have been feeling the pinch since the beginning of 2017, with inflation sitting at its joint highest level for more than three years at 2.3% in March.

The squeeze on household spending power has been compounded by dismal retail sales, which recorded their biggest fall for seven years in the three months to March.


Chris Radburn/PA Wire

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