Financial pinch for UK consumers

LONDON: British households turned increasingly cautious in the three months to September as they raised their spending at the slowest annual pace since 2012, according to official data published yesterday.

In figures which underscore the headwinds facing the world’s sixth-biggest economy as Brexit approaches, the Office for National Statistics (ONS) confirmed that gross domestic product (GDP) grew by 0.4% on the quarter.

That was in line with the median forecast in a Reuters poll of economists. Annual growth was unexpectedly revised up to 1.7% from 1.5%, but the increase mostly reflected changes to data going back to the start of last year and it was the weakest increase since early 2013, the ONS said.

Households, under pressure from rising inflation and weak wage growth, saw almost no growth in their overall incomes, forcing them to dip into their savings.

Britain has grown more slowly than other big European economies this year as the rise in inflation, caused largely by the fall in the value of the pound after the 2016 referendum decision to leave the EU, caught up with consumers.

“The figures confirm the pressure on households,” Investec economist Philip Shaw said.

An expected fall in inflation next year and forecasts for a long-awaited rise in wage growth should ease some of the squeeze,” Shaw said.

He noted that in contrast to the strain on consumers, factories were growing strongly with manufacturing output up 3.3% in annual terms, helped by the recovering global economy and weaker pound.

Manufacturing accounts for about 10% of Britain’s economy compared with 80% from the services sector, which grew by an annual 1.4%, reflecting the weak domestic economy. Sterling and British government bonds were little changed.The Bank of England (BoE) raised interest rates last month for the first time in 10 years, in part because it expects wage growth to gain more speed.

It is expected to raise them twice more over the coming three years. The BoE said last week that the economy appeared to be slowing slightly in late 2017, and Brexit remained a big uncertainty.

The data showed household disposable incomes, adjusted for inflation, grew 0.2%, down from growth of 2.3% in the second quarter although better than a fall in the first three months of the year. The household saving ratio fell to 5.2% from 5.6% in the second quarter but was higher than a low of 3.7% in the January-March period. – Reuters

PICTURE: REUTERS A market analyst keeps an eye on the economic trends on the trading floor at IG Index in London.