Slowdown deeper than was forecast

ECONOMY: The economy in the UK suffered an even deeper slowdown at the start of the year than forecast as higher rates of inflation have placed incomes and spending under increasing pressure.

The services sector came under pressure as Sterling’s slump since the Brexit vote has bumped up the cost of the living.

THE ECONOMY in the UK suffered an even deeper slowdown at the start of the year than forecast as higher rates of inflation have placed incomes and spending under increasing pressure.

The powerhouse of the nation’s economy, the services sector – which includes retail, banking, health and education – came under particular pressure as Sterling’s slump since the Brexit vote has bumped up the cost of the living.

Official figures published by the Office of National Statistics (ONS) yesterday showed that gross domestic product (GDP) grew by 0.2 per cent in the first quarter of 2017, down on initial estimates of 0.3 per cent.

Economists had been expecting GDP growth to slow from 0.7 per cent in the fourth quarter of last year, but they had pencilled in growth of 0.3 per cent for the first three months of 2017.

Ian Stewart, the chief economist at Deloitte, added: “Just as expected higher inflation is squeezing incomes and spending.

“High inflation is hitting consumers, but a weak pound and a recovering global economy are helping businesses.

“UK growth is likely to tilt away from the consumer towards exports, manufacturing and investment this year. This should keep the UK economy growing at a similar rate to last year.”

The services sector put pressure on GDP after output was revised down to 0.2 per cent from 0.3 per cent for the first quarter.

It means the services industry, which accounts for 78 per cent of the UK economy, slowed substantially from the 0.8 per cent growth seen between October and December last year.

Household spending was also dragging on overall growth for the first three months of the year after eking out its lowest quarter-on-quarter growth since 2014 at 0.3 per cent.

The cost of living has increased as manufacturers and retailers pass down rising import prices to consumers.

Inflation hit its highest level in nearly four years last month at 2.7 per cent, as the Brexithit pound, electricity price hikes and rising air fares tightened the squeeze on household spending.

The Bank of England said earlier this month that inflation would peak at three per cent later this year.