British economy slows
sharply as inflation hits home
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[April 28, 2017]
By David Milliken and Andy Bruce
LONDON
(Reuters) - Britain's economy slowed sharply in the first three months
of 2017 as households and high streets felt the pinch from higher
inflation, which has risen sharply since last year's Brexit vote.
With the country heading for an election on June 8, there were other
signs on Friday of a slowdown as house prices fell for a second month
and a measure of consumer confidence dipped.
The Office for National Statistics said growth in the overall economy
weakened to a one-year low of 0.3 percent in the three months to March
from 0.7 percent in late 2016.
That represented a bigger slowdown in the rate of quarterly gross
domestic product growth than the drop to 0.4 percent economists had
forecast in a Reuters poll.
Last year, Britain vied with Germany to be one of the fastest growing of
the world's major advanced economies with annual growth of 1.8 percent,
defying widespread predictions of recession after the vote to leave the
European Union.
But Friday's figures are the clearest sign so far that the country is
slowing after the Brexit vote and in the run-up to the early election
called by Prime Minister Theresa May, who says she wants to strengthen
her hand in exit talks as Britain prepares to leave the EU in 2019.
That said, weak retail data last week had caused some to expect a weaker
number and the currency markets brushed off the new numbers ahead of a
holiday weekend.
British finance minister Philip Hammond said the economy remained
resilient, but the opposition Labour Party said the figures showed
living standards were under threat.
Alan Clarke, an economist at Scotiabank, expects growth to slow further
in the coming months to a quarterly rate of 0.2 percent as the squeeze
from inflation intensifies.
"This weakness is likely to be blamed on Brexit. That is probably fair,"
Clarke said.
Consumer price inflation stood at 0.5 percent at the time of the June
2016 Brexit vote, but since then it has risen to its highest in nearly
four years at 2.3 percent, and many economists expect it to hit 3
percent later in 2017 or early next year.
Sterling fell by around 15 percent against major currencies after the
Brexit vote and this -- combined with higher global prices for oil and
other commodities -- is behind most of the rise in inflation, eating
into households' disposable income.
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Shoppers cross Oxford Street in central London August 15, 2013.
REUTERS/Toby Melville/File Photo
The
ONS said the biggest drag to first-quarter growth came from retailers and
hotels, which had been hurt by higher prices. Last week it said retail sales
suffered their biggest quarterly fall since 2010.
Despite the pick-up in inflation, the Bank of England is widely expected to keep
interest rates at their record low of 0.25 percent as it waits to see the full
impact of Brexit on the country's economy.
SLOWDOWN
British growth last year relied heavily on consumer spending -- to the extent
that household saving fell to a record low -- while the boost some exporters
have felt from a weaker currency has yet to revive the economy as a whole.
Businesses ranging from coffee shops to carpet fitters have reported tougher
trading conditions, though some cheaper clothing chains are doing well.
The ONS said GDP growth in year-on-year terms rose to 2.1 percent from 1.9
percent in the final three months of 2016, the strongest rate since the second
quarter of 2015.
The BoE and the International Monetary Fund forecast growth of 2.0 percent this
year before a modest slowdown in 2018. Most private-sector economists see weaker
growth this year.
Britain's dominant services sector grew 0.3 percent in the first quarter, the
weakest rate in two years, after growth of 0.8 percent in late 2016, the ONS
said. Industrial output also rose 0.3 percent while construction expanded by 0.2
percent.
(Editing by Jeremy Gaunt)
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