Economic growth downgraded as inflation hits spending

The UK economy suffered an even deeper slowdown at the start of the year as the services sector came under pressure and inflation dealt a blow to household spending.

Rising inflation is taking its toll on consumer spending. Picture: Ian Georgeson

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by just 0.2 per cent in the first quarter of 2017, revising down the figure from its initial estimate of 0.3 per cent.

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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 0.4 per cent for the first three months of 2017.

The ONS said: “Consumer-facing industries such as retail and accommodation fell and household spending slowed.

“This was partly due to rising prices. Construction and manufacturing also showed little growth, while business services and finance continued to grow strongly.”

The services sector put downward 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 powerhouse industry, which accounts for more than three-quarters 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.