British economy slowed in first quarter say economists

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The UK economy has been buoyant in the past nine months (Source: Getty)

Growth in the UK economy moderated in the first quarter of 2017 as inflation started to drag on spending, government figures are expected to show.

Economists expect data to show GDP grew by 0.4 per cent in the first three months of the year, down from the 0.7 per cent acceleration recorded at the end of 2016.

If these forecasts are realised it would represent the slowest growth rate in four quarters, since the economy stalled at the start of last year.

Read more: IMF upgrades UK growth forecast yet again

Some forecasts show growth slightly higher. Ruth Gregory, an economist at Capital Economics, predicts growth will slow to a “still-respectable” 0.5 per cent quarterly rate.

The extent of the slowdown as well as performance in future quarters will depend in large part on how businesses and consumers react to rising prices and Brexit-related uncertainty.

Howard Archer, chief UK and Eurozone economist at IHS Markit, said: “Businesses will likely become more cautious over investment and employment as the economy shows increasing signs of slowing and uncertainties over the outlook are magnified by Brexit negotiations coming to the forefront now that the government has triggered Article 50.”

Read more: UK economy to accelerate this year after growth upgrade says OBR

However, the weaker pound has also boosted some exporting businesses, which have seen their products become more attractive to foreign buyers.

For consumers the weakness of sterling has boosted inflation, eating into real wage growth.

In a note to clients Chris Scicluna and Mantas Vanagas, economists at Daiwa Capital Markets, said: “With wage growth remaining very subdued, we anticipate that household budgets will be increasingly stretched and so consumption is highly unlikely to support GDP growth to an extent similar to that of recent quarters.”

The UK economy accelerated throughout last year as the global economy improved and consumers continued to spend healthily, defying the predictions of influential economists.

Read more: A year of two halves: UK GDP revised up at end of year, but down at start

Forecasters were caught out by the strength in consumer spending after the UK’s vote to leave the EU, with the Bank of England pointing to unexpectedly resilient consumer spending to explain their forecasting errors.

In a speech at the end of last week Michael Saunders, an influential member of the Bank’s Monetary Policy Committee, said they may have underestimated the underlying strength of the UK economy as well as the performance of consumer spending.

He said low unemployment and solid real income growth may have left the UK economy stronger than previously thought.

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