UK economy held back by weak consumer spending

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UK economy held back by weak consumer spending

Household spending contracted by 0.6pc on the quarter, the biggest drop since the recession. Photo: Getty Images
Reuters 10:57AM BST 25 May 2011Comment

The latest figures from the Office for National Statistics(ONS) confirmed the initial estimate, that Britain’s economy grew just 0.5pc in the first quarter, after contracting by the same amount in the last three months of 2010.

This means the economy has effectively stagnated over the past six months – a far worse performance than Britain’s major trading partners.

“The lack of any upward revision leaves the economic recovery earlier this year still looking disappointingly weak,” said Vicky Redwood at Capital Economics.

Uk economy drawn back

A breakdown of the figures showed growth would have been even weaker had government spending not grown by a robust 1pc over the quarter. Public spending cuts mean this category will be unable to contribute to growth going forward.

Neither is the consumer in any position to drive the economy. Household spending contracted by 0.6pc on the quarter, the biggest drop since the recession, and looks set to remain weak as wages fail to keep pace with inflation.

“These figures underline the significant weakness in the consumer sector,” said Hetal Mehta, economist at Daiwa Capital Markets. “It reinforces our view that the majority of the Monetary Policy Committee will continue to vote for no change in interest rates this year.”

Business investment fell by a whopping 7.1pc on the quarter.

The only bright spot was trade which made its biggest contribution to quarterly GDP growth in more than 50 years. This pushed Britain’s trade deficit down to £5.7bn pounds in the first quarter from £11.5bn at the end of 2010.

Economists were not expecting any upward revision, and reckon the government’s 2011 growth assumption of 1.7pc is starting to look optimistic.

The Organisation for Economic Cooperation and Development (OECD) also revised down its UK growth forecast in a twice-yearly report on Wednesday, projecting growth of just 1.4pc for the year.

It also forecasts an expansion of 1.8pc in 2012, compared to the official forecast of 2.5pc.

Source: Telegraph