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Retail

U.K. Economy Slows More Than Forecast As Consumers Cut Back

The U.K. economy posted its worst performance in a year as the dominant services industry felt the impact of an intensifying squeeze on living standards.

Growth slowed to 0.3 percent in the first quarter from 0.7 percent in the final three months of 2016, the Office for National Statistics said on Friday. The figure was weaker than the 0.4 percent forecast by economists in a Bloomberg survey. Services grew just 0.3 percent, the least since the start of 2015.

Having made Britain the strongest-growing Group of Seven economy bar Germany last year, consumers are now cutting back in response to rising prices brought on by the depreciation of the pound since the June Brexit vote and higher oil costs.

Households and businesses are also facing a period of heightened uncertainty as Britain prepares for a general election and the start of two years of negotiations to leave the European Union.

The downturn in services, which accounts for 79 percent of the economy, was driven by consumer-focused industries such as retailers, hotels and restaurants. Together, they fell 0.5 percent. Transport, storage and communication declined 0.2 percent.

Industrial production rose 0.3 with percent, with buoyant exports -- the result of the weak pound -- helping manufacturers increase output by 0.5 percent. Construction rose just 0.2 percent.

The data for March is based on estimates and early responses to survey questions. They show industrial production falling 0.7 percent -- the third consecutive decline -- and services output unchanged following a 0.2 percent increase in February. Construction is estimated to have increased 0.3 percent.

The U.K. is the first G-7 nation to report GDP for the first quarter. The U.S. follows later Friday, with economists predicting annualized growth of 1 percent, down from 2.1 percent in the previous three months. The equivalent first-quarter rate for the U.K. was 1.2 percent.

Further evidence of the squeeze on households emerged Friday, with separate surveys showing house prices fell for a second month in April and consumer confidence dipped to the lowest since July.

And the pressure is expected to intensify, economists say. Inflation is pulling ahead of earnings and a record-low saving ratio means people have little room to maintain their spending by setting aside less.

GDP rose 2.1 percent from the first quarter of 2016. Output per head grew just 0.1 percent from the fourth quarter.

The first-quarter GDP estimate is the first of three, based on only 44 percent of the information that will ultimately be available.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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