Consumer spending growth slows

Feb 28 2008 by Our Correspondent, Western Mail

THE UK economy grew by 0.6% in the final three months of 2007, but consumer spending took a sharp turn for the worse, official figures revealed yesterday.

The Office for National Statistics (ONS) said household expenditure rose by 0.2%, down from the 0.9% seen the previous quarter and the weakest since the second quarter of 2006.

Business investment and exports also faltered at the end of last year, declining by 0.5% and 1.2% respectively, according to the ONS figures.

Experts said the data indicated that the UK was set for much weaker growth this year.

Allan Monks, economist at JP Morgan, said the ONS figures confirmed his forecast for growth to slow from 0.6% to 0.3% in the first three months of this year.

He said this could provide the clear sign of slowing growth needed for the Bank of England to cut rates again before its next quarterly inflation report in May.

“The monthly data over the next few weeks still needs to move in a way that vindicates a growth trajectory that is clearly softening, but today’s report will be viewed as dovish by the Monetary Policy Committee – the February inflation report implies a forecast of close to 0.6% for first quarter growth,” he said.

The figures left fourth quarter GDP unrevised from the earlier estimate published last month, however the expenditure breakdown revealed a worrying picture for growth, added Mr Monks.

Howard Archer, an economist at Global Insight, is forecasting economic growth to slow to 1.8% this year from 3.1% in 2007 and he cautioned that growth was likely to remain flat at 1.8% again in 2009.