UK economy grew by just 0.2% in first quarter

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The UK economy grew by just 0.2% in the first quarter of 2017, lower than an initial estimate of 0.3%, revised official figures show.

The Office for National Statistics (ONS) said the dominant services sector – which represents more than three quarters of output – had been weaker than anticipated.

It follows growth of 0.7% in the fourth quarter of 2016 and means that the UK’s growth slowdown – partly driven by rising inflation – is worse than first thought.

The ONS pointed to declines for consumer-facing industries such as retail and hotels and a slowdown in household spending, as well as weak growth for construction and manufacturing.

The latest estimate included figures for household consumption – which grew at its weakest pace since the end of 2014 – and business investment which, in contrast, returned to growth after a weak finish to 2016.

Britain’s economy performed better than expected in the wake of the Brexit vote last year but accelerating price rises – partly driven by the sharp fall in the pound since the vote – now appear to be taking their toll.

Latest official data showed that in real terms – that is, taking into account inflation – wages fell by 0.2% in the first three months of 2017, the first time there has been a decline for two and a half years.

Alan Clarke, head of European fixed income strategy at Scotiabank, said the GDP figure was disappointing and “like driving down the motorway at 20mph instead of 70mph”.

But Ruth Gregory, UK economist at Capital Economics, said more recent business surveys suggested there was a good chance growth could rebound in the second quarter.

She said: “Although there are many challenges ahead – not least further rises in inflation – we don’t think any slowdown this year will be too severe.”

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