Consumers lose appetite for spending due to rising prices in shops


Consumers failed to propel the UK economy in the first quarter as rising prices dampened appetite for spending, official figures will show this week.

City economists believe the Office for National Statistics will confirm on Thursday that economic growth more than halved to 0.3% in the first three months of the year from 0.7% in the previous quarter.

The second estimate of GDP growth provides a more detailed breakdown of how the economy performed, including a first take on consumer spending.

Philip Shaw, economist at Investec, said the detail was likely to confirm that the first quarter was “a very soft period” for household spending, following decent growth of 0.7% in the previous quarter.

He said a consumer slowdown was likely to weigh on the wider economy, which grew by 1.8% in 2016.

“Thanks to the rise in inflation, household finances are now facing headwinds rather than tailwinds and this is principally why we are expecting a year of relatively subdued GDP growth of 1.7% over 2017 as a whole,” Shaw said.

The first estimate suggested that growth in consumer-facing businesses slowed sharply in the period January to March. Growth in the service sector, which includes hotels, bars and restaurants, slowed to 0.3% from 0.8% in the fourth quarter of 2016.

Growth in industrial production and construction output also slowed over the period, to 0.1% and 0.2% respectively.

Howard Archer, chief UK economist at IHS Markit, said there was a chance that growth could be revised down in the second estimate. “If anything the risks look to be slightly slanted to the downside rather than the upside,” he said.

Separate ONS data due on Tuesday will give the first insight into the state of the public finances after the new fiscal year got underway in April.

The figures are expected to show the government borrowed £9.5bn last month, up from £9.1bn in the same month a year earlier. It would be the highest level of borrowing in the month of April since 2015.

In the 2016-17 financial year to the end of March, borrowing fell by £20bn to £52bn after economic growth helped drive tax receipts higher, narrowing the gap between what the government spends and earns.

It was the lowest deficit since 2007-08, and meant that chancellor Philip Hammond essentially met his £51.7bn target, set by by the Treasury’s independent forecaster, the Office for Budget Responsibility, at the time of the budget in March.

However, the OBR expects borrowing to rise again this year, to £55.2bn, partly owing to one-off factors but also because of slowing growth as consumers rein in spending in response to rising shop prices.