Household spending falls to three year low as UK economy grows

Household spending slumped to a three-year low in the last quarter as inflation continues to put pressure on incomes
Gareth McKeown and PA

THE UK economy grew by 0.3 per cent between April and June, but household spending slumped to a three-year low following a slowdown in new car sales and persistent pressure from higher inflation.

The Office for National Statistics (ONS) said the amount of money spent by UK households grew by just 0.1 per cent in the second quarter, down from 0.4 per cent for the first three months of the year.

The rate - its lowest since the final three months of 2014 - was driven by a sharp drop in transport spending, which fell by 2.2 per cent between April and June after growing by 1.4 per cent. in the first quarter.

The slight increase in economic growth (GDP) from 0.3 per cent from 0.2 per cent in the first three months of the year means the UK is likely to have recorded the slowest second quarter growth out of all the G7 group of nations, with Canada expected to deliver another strong increase in GDP for the period.

The lion's share of second-quarter GDP growth came from services, which expanded by 0.5 per cent over the period, thanks in part to a strong quarter for the British film industry.

Meanwhile business investment, which includes money spent by firms on commercial property and machinery, was flat in the second quarter at £43.8 billion.

Ulster University economist Dr Esmond Birnie said the figures did not make for positive reading.

"We are seeing the impact of the squeeze in real living standards given inflation rates higher than annual wage and salary growth," he said.

"Whilst some might attribute part of the slowdown to the delayed shock from last summer's Brexit decision, it is important to note that UK GDP growth has been decelerating since 2014, that is, long before the EU vote. Northern Ireland is probably tracking the UK trend- growth here is also slowing down.”

John Hawksworth, PwC's chief economist, said GDP growth remained lacklustre, but he did not expect an outright recession because employment growth "remains reasonably strong" and government spending is "cushioning some of the blow to business confidence from Brexit".

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added: "The GDP figures show that the UK economy has been the slowest growing G7 economy this year because Brexit risk has dampened business investment and sterling's depreciation has hurt consumers more than it has helped exporters.

"Looking ahead, we expect the economy to continue to struggle, with GDP rising by just 0.2% in both the third and fourth quarters."

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