Spending by British consumers is growing at the weakest rate in almost three years, as households squeezed by rising prices tighten their belts.
Household spending growth slowed to 0.1% in the three months to June, the Office for National Statistics said, the slowest rate of quarterly growth since the final three months of 2014. Business investment in the British economy showed no growth at all in the second quarter.
The slowdown in private consumption, which was worse than expected by City economists, comes as rising inflation and weaker levels of wage growth puts the squeeze on household budgets. The slump in the value of the pound since the UK’s vote to leave the European Union last year is also taking its toll.
Howard Archer, the chief economic adviser to the EY Item Club, said: “Consumer spending is likely to be pressurised through the latter months of the year by an ongoing appreciable squeeze on purchasing power. Indeed, real incomes growth is likely to remain negative for some months to come.”
Some of the fall in household spending could be down to consumers shifting their car purchases to beat a tax change earlier this year, according to analysts at Capital Economics. “We remain optimistic that a modest acceleration in growth in the second half of the year is in prospect,” said Paul Hollingworth, UK economist at the consultancy.
Following a 0.6% expansion in the first quarter, the flat level of business investment in the three months to June was particularly disappointing to economists, and could point to firms’ concerns and uncertainties over Brexit limiting spending decisions.
The ONS reaffirmed its first estimate for gross domestic product growth in the first quarter of 0.3%, illustrating the sluggish pace of the UK economy. With inflation at close to peak levels, the Bank of England could be put off from raising interest rates before late 2018, or even early 2019, according to Archer.