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UK household spending slows to lowest level in almost six years UK household spending slows to lowest level in almost six years
(about 5 hours later)
Spending by UK households slowed to its lowest level in almost six years during 2017 as the impact of higher inflation hit living standards. Spending by UK households slowed to its lowest level in almost six years during 2017 as the impact of higher inflation hit living standards and forced people to prioritise their basic needs.
The Office for National Statistics said spending in the third quarter was up by 1% on the same period in 2016 – the weakest annual growth since the first three months of 2012. The latest official figures show that consumers spent less on restaurants and hotels in the three months ending in September, but more on food, rent, fuel bills and transport.
In its latest update on the state of the economy, the ONS reported growth of 0.4% in the third quarter – unchanged on its previous estimates but slightly higher than the 0.3% recorded in each of the first two quarters. The Office for National Statistics said household spending rose by 0.5% in the third quarter, but was just 1% higher than a year earlier – the slowest annual growth since early 2012.
Revisions to previous data meant, however, that annual growth in the year to the third quarter has been adjusted up from 1.5% to 1.7%. Living standards have been squeezed as a result of the fall in the value of the pound since the EU referendum in June 2016. The annual inflation rate has risen from below 1% to more than 3%, while earnings have been growing at an annual rate of just over 2% despite a steady fall in unemployment to a 42-year low of 4.3%.
Household spending increased 0.5% between the second and third quarters but was boosted by consumers running down their savings during a period when real incomes were squeezed by price rises running ahead of pay. Economists said there was some evidence from the ONS data of a rebalancing of the economy away from consumption and toward the other components of growth. Growth in business investment during the third quarter was revised up from 0.2% to 0.5%, while net trade – which measures the difference between import and export growth – ceased to be a drag on the economy.
Yael Selfin, the chief economist at KPMG UK said: “The final figures for the third quarter paint a picture of a significantly weaker domestic economy but a more positive exports performance. Weaker government spending and a marginal downward revision to consumer spending were offset by an upward revision to investment and a rise in exports, as companies took advantage of the weak pound and bourgeoning growth momentum in many of the UK’s key trading partners.
“Consumer spending was a key driver of growth in the third quarter, however the rise in spending centred on households’ basic needs such as electricity, gas and fuel, as well as housing rent and transport. Spending on discretionary treats like restaurants and hotels actually declined, as a squeeze on real incomes made consumers more careful with their spending.”
In its latest update on the state of the economy, the ONS reported growth of 0.4% in the third quarter, unchanged on its previous estimates but slightly higher than the 0.3% recorded in each of the first two quarters.
Revisions to previous data meant, however, that annual growth in the year to the third quarter has been adjusted up from 1.5% to 1.7%. The City is expecting the economy to expand by 0.4% in the final three months of 2017, making the UK one of the slowest growing members of the G7 group of leading industrialised nations. The eurozone grew by 0.6% in the third quarter of the year.
The ONS said the 0.5% increase in household spending between the second and third quarters was the result of consumers running down their savings. Consumer spending was strong in the immediate aftermath of the referendum, growing by 0.8% in the third quarter of 2016, but has since expanded more slowly.
Paul Hollingsworth, a UK analyst at Capital Economics, said the ONS figures revealed a more balanced growth picture, with household spending revised down but business investment revised up from 0.2% to 0.5%.Paul Hollingsworth, a UK analyst at Capital Economics, said the ONS figures revealed a more balanced growth picture, with household spending revised down but business investment revised up from 0.2% to 0.5%.
“The economy looks to have maintained this pace in Q4,” Hollingsworth added. “This should mean that GDP growth for 2017 as a whole should come in at about 1.8%.” “The economy looks to have maintained this pace in Q4,” he said. “This should mean that GDP growth for 2017 as a whole should come in at about 1.8%.”
The ONS’s head of national accounts, Darren Morgan, said: “Today’s unrevised third quarter figures show most of the growth came from the dominant service sector, with accounting, recruitment agencies and retailing all performing well.The ONS’s head of national accounts, Darren Morgan, said: “Today’s unrevised third quarter figures show most of the growth came from the dominant service sector, with accounting, recruitment agencies and retailing all performing well.
“Manufacturing also boosted growth thanks to an increase in exports and the introduction of new car models. Meanwhile, household spending and business investment both grew steadily.”“Manufacturing also boosted growth thanks to an increase in exports and the introduction of new car models. Meanwhile, household spending and business investment both grew steadily.”
Britain’s balance of payments deficit with the rest of the world narrowed from 5.1% of GDP in the second quarter to 4.5% in the third quarter. The improvement was mainly due to UK investors securing higher returns on their overseas holdings than overseas investors made on their holdings in Britain. Britain’s balance of payments deficit with the rest of the world narrowed from 5.1% of GDP in the second quarter to 4.5% in the third quarter. The improvement was mainly the result of UK investors securing higher returns on their overseas holdings than overseas investors made on their holdings in Britain.