British shoppers are no longer the biggest driver of economic growth as households slowed down their spending spree in the second quarter of the year.
Household expenditure rose by just 0.1 per cent on the quarter, the weakest performance since late 2014, the Telegraph reports.
That contributed to keeping GDP growth at 0.3 per cent in the three months to June, the Office for National Statistics (ONS) said.
Compared with the same period a year ago household consumption is still up by 2.8 per cent, its strongest pace since 2015. But that spurt appears to be grinding to a halt, as rising prices combined with mediocre earnings growth eat away at families’ spending power.
“Gross domestic product (GDP) growth has slowed markedly in the first half of the year with relatively robust services growth, partly thanks to a booming film industry, offset by weak performances from manufacturing and construction in the second quarter,” said Darren Morgan, the ONS’s head of GDP.
“Household spending grew weakly, with the lower-value pound hitting household budgets, while business investment showed no growth at all.”
Surging borrowing had helped to support consumer spending in 2016 and early 2017, but there are hints that the rapid rises are slowing.
Growth in borrowing on credit cards slowed to 5.3 per cent in the 12 months to July, compared to 6.3 per cent a year earlier, UK Finance said.
The number of credit cards in issue has also dropped to its lowest level in more than two years, falling by almost 500,000 on the month to 59.2m in July.
Savings rates continued to slide, however, with personal deposits growing by just 2.3 per cent on the year, the slowest pace since mid-2009 at the height of the financial crisis.
Mortgage lending continued to grow at 2.5 per cent on the year, matching its average pace over the past 12 months and defying fears of a slowdown in the housing market.
In other parts of the economy, construction output slid by 1.3 per cent in the second quarter, the ONS said, while production – a category that includes industries such as manufacturing, mining and utilities – slipped by 0.3 per cent.
Business investment was flat on the quarter but extra public spending pulled total gross fixed capital formation up by 0.7 per cent as Government investment and public housing spending picked up.
The services sector, which makes up almost 80 per cent of the economy, expanded by 0.5 per cent in the quarter and 2.5 per cent in the year.
Its best performing industry in the latest quarter was transport, storage and communications, while over the past 12 months the strongest growth has come in business services and financial services.
“Two-thirds of second quarter GDP growth was due to higher public spending, split between current spending and public investment,” said Simon Wells, chief European economist at HSBC.
“While this doesn’t inspire confidence, the good news is that the service sector ended the quarter fairly strongly, providing a good base for the third quarter.”
One benefit of the fall in the pound was expected to be a rise in exports and an improvement in Britain’s net trade position, but there is little evidence of this coming through in the official data as yet.
“In fact, with exporters opting to increase profit margins at the expense of export volumes, net trade has depressed GDP by around 0.5 percentage points since last June’s decision to leave the EU,” said economist Joanna Davies at Fathom Consulting.
“Supported by today’s data, and with the consumer squeeze set to intensify, we stand by our view that there is a greater-than-evens chance of a technical recession in the UK over the next year.”
The consensus forecast among economists is for growth to remain at 0.3 per cent for each of the next three quarters, before edging up to 0.4 per cent per quarter from April of 2018.
