Growth slows as rising prices bite
Britain’s economic growth slowed to just 0.3% in the first quarter as the impact of the falling pound and rising prices took effect.
The latest quarterly GDP figures, released yesterday by the Office for National Statistics (ONS), reveal a sharper slowdown than had been expected.
Economists had expected GDP growth to slow as consumers tightened their belts in the face of rising inflation, but had pencilled in a higher growth figure of 0.4%.
The ONS said: “There were falls in several important consumerfocused 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 price increases from rising inflation put the brakes on retail trade and accommodation services growth.
Construction output also dragged 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 rising 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 to 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 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.
CBI chief economist Rain Newton-Smith said: “GDP growth has eased compared to the second half of last year, with weakness particularly apparent in consumer-facing services.
“This chimes with signs that some of the recent supports to growth are softening. In particular, real wage growth has deteriorated, as inflation is now running up against earnings growth. With inflation set to continue rising, the pressure on household incomes will weigh on consumer spending.
“As the UK looks to redefine its role in the world, the next government must deliver an industrial strategy that build on our already solid foundations. A focus on improving openness, innovation and inclusivity will boost productivity and living standards, helping to make us the most competitive economy in the world by 2030.”
TUC general secretary Frances O’Grady said: “Today’s GDP figures do not bode well for the future. Consumer spending has been propping up the UK economy, but with pay packets squeezed, families have less money to spend on the high street. The next government cannot rely on household spending alone to drive growth, especially when another living standards crisis is on the horizon.”
Robert Lloyd Griffiths, director of the Institute of Directors in Wales, said: “Today’s figures show that this is no time for complacency. It’s just one quarter, but the slowdown in growth emphasises the importance of maintaining confidence amongst businesses and consumers over the next couple of years as our political leaders haggle with the EU over the terms of the Brexit deal.
“The Brexit negotiations, as time-consuming as they will be, cannot be an excuse to take our eye off the ball on the many factors affecting the UK’s long-term economic competitiveness.”