Price increases put a brake on UK growth

THE UK economy slowed sharply in the first three months of the year, in a sign that rising prices have brought the recent growth spurt to an end.

The economy grew by 0.3pc in the first quarter of 2017, according to the Office for National Statistics (ONS).

This compares with growth of 0.7pc in the final quarter of 2016, and was below economists’ estimates for an expansion of 0.4pc.

It was also the slowest expansion since the first quarter of 2016.

The slowdown was driven by weak growth in Britain’s dominant services sector, which expanded by just 0.3pc over the period, compared with growth 0.8pc in the final quarter of last year.

The ONS noted that there had been “falls in several important consumer-focused industries”, including retail sales and hotel stays.

“This was due in part to prices increasing more than spending,” it said.

There were also signs of more balanced growth. Production output grew by 0.3pc, driven by a 0.5pc increase in manufacturing, while the construction sector expanded by 0.2pc.

This suggests that while the Brexit-induced drop in the pound has squeezed consumer spending, it has also boosted the competi- tiveness of British exporters.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “The production related sectors of the economy are forging ahead thanks to an improving global picture and the more competitive pound.”

Separate data revealed an even bigger slowdown in the US economy as consumer spending grew at the slowest pace since the financial crisis.

Growth in the world’s biggest economy slowed to 0.2pc in the first quarter. This rep- resents the slowest expansion in three years. Meanwhile, the French economy expanded 0.3pc in the same period.

Indicators suggest UK growth will slow further as inflation rises. Prices, as measured by the consumer prices index, rose by 2.3pc in the year to March. Many economists believe inflation will climb to 3pc by the summer.

Alan Clarke, an economist at Scotiabank, said: “To put the pace of growth into context, this is like driving away for the bank holiday weekend, hitting traffic and slowing from 70mph to 30mph – and it is starting to rain.”