UK economic growth slower than expected as inflation hits retail sales

Estimates of the UK’s economic growth have been revised down, with new figures showing it grew more slowly than expected in the first three months of 2017.

While estimates for the first quarter predicted 0.3 per cent growth, the UK economy actually grew by 0.2 per cent, according to figures from the Office for National Statistics.

Inflation and rising prices, which had been tipped to slow spending, contributed to a slowdown affecting “consumer-facing industries such as retail sales and accommodation”.

The services sector, which accounts for 80 per cent of the UK economy and was expected to expand by 0.3 per cent, saw just 0.2 per cent growth in the first quarter.

The UK economy had previously grown by 0.7 per cent in the last quarter of 2016.

“UK GDP growth slowed to 0.2 per cent in quarter one of 2017 as consumer-facing industries such as retail and accommodation fell and household spending slowed,” the ONS said on its website.

“This was partly due to rising prices. Construction and manufacturing also showed little growth, while business services and finance continued to grow strongly.”

Previous statistics, such as those from the Confederation of British Industry, had already shown a drop in retail sales, which it warned could have a knock-on effect for hiring in the sector.

“Retail sales flattened out this month, as the bounce in April unwound,” said CBI principal economist Alpesh Paleja on Tuesday, when the figures were published.

“It’s clear that households are increasingly feeling the pinch, as rising inflation pushes down on real earnings. Taken together with higher import cost pressures from a weaker pound, this is creating a challenging environment for retailers.”

The CBI tipped retail sales to “rise marginally again” in June, but warned that this growth would “remain below the long-run average”.

For more on the GDP figures, see the ONS’s website.