UK economy grows by 0.3% as service sector slows


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The services sector, which includes retailing, saw strong growth

The UK economy grew by just 0.3% at the start of the year, the slowest growth rate since the first three months of 2016, according to official figures.

The Office for National Statistics said that the slower pace in the January-to-March period was due mainly to the service sector, which also grew by 0.3% against 0.8% at the end of 2016.

In the last quarter of 2016, gross domestic product increased by 0.7%.

Friday’s figure is a first estimate and could be revised in the coming months.

Economists had been expecting GDP growth to slow as consumers tightened their belts in the face of rising inflation, but they had pencilled in a higher figure of 0.4%.

The ONS said in a statement: “There were falls in several important consumer-focused industries, such as retail sales and accommodation; this was due in part to prices increasing more than spending.”

The main drag on the service sector, which accounts for about 78% of the UK economy, came from the hotels, restaurants and distributions sector, which fell by 0.5%, as increasing prices from rising inflation applied the brakes to retail trade.

Output in the construction sector was also dragging on GDP after expanding by 0.2% in the first three months of the year following 1% growth in the fourth quarter of 2016.

Industrial production expanded by 0.3% over the period, with manufacturing increasing by 0.5% thanks to a jump in motor vehicle output, while agriculture growth eased to 0.3% in the first quarter from 1% in the final quarter of 2016.

‘Caution and uncertainty’

Consumers have been feeling the pinch since the beginning of 2017, with inflation sitting at its joint highest level for more than three years at 2.3% in March.

The squeeze on household spending power led to weaker retail sales, which recorded their biggest fall for seven years in the three months to March.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said the data would add to uncertainties.

“With the General Election just around the corner and Brexit negotiations afoot, any dip in the economy risks bringing further caution and uncertainty to businesses, which has a knock-on effect when it comes to investment and employment.

“However the chancellor, with better than expected Budget tax receipts in his pocket, has room for manoeuvre and should be able to pre-empt any further slowdown which should help with business confidence,” she said.

Suren Thiru, head of economics at the British Chambers of Commerce, said the data confirmed his group’s own survey that businesses were starting to feel the pressure.

“It is increasingly likely that the slowdown in the first quarter is the start of a sustained period of more sluggish growth. Inflation is expected to continue to rise, increasing the squeeze on consumer spending power and firm’s profit margins, pushing growth lower,” he said.



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