Economic growth in UK expected to slow in first few months of 2018

Economic growth in the UK is expected to slow in the first few months of 2018 as high inflation, weak consumer confidence and uncertainty surrounding Brexit discourage high street spending and investment.

A series of business and consumer surveys pointed to lower growth, ending a strong run that culminated in a rise in GDP growth to 0.5% in the last quarter of 2017.

Lloyds Bank said a survey of customers showed households were struggling to cope with rising prices that forced them to spend more on food, petrol and heating bills. In a monthly survey of over 2,000 bank account holders, 55% of people said they spent more on household groceries compared to this time last year, a rise of 17 percentage points on December 2016.

A year ago half of respondents felt comfortable with the level of inflation. By December 2017 70% were feeling negative about it, the bank said.

The survey chimed with a separate survey on consumer confidence by Ipsos Mori that found respondents pessimistic about the outlook for the next year. The polling firm said its confidence index remained at -32 compared to more than +30 in 2014.

The weakening outlook is expected to motivate the Bank of England’s interest rate setters to keep the central bank’s base rate at 0.5% when it meets in a fortnight’s time. Some economists have speculated that the strength of the manufacturing sector and record levels of employment would trigger a series of rate rises this year.

But the downbeat surveys, combined with figures showing the housing market slowing and the construction industry in recession, will play a significant role in any assessment of the economy by the nine-strong monetary policy committee.

Robin Bulloch, managing director of Lloyds Bank, said household budgets were under pressure, with a significant decrease in the proportion of consumers planning to save more in six months’ time.

“Families with kids are feeling the pressure more than most. Not only has there been a fall in those who plan to save more, but also 45% expect to have to spend more in six months’ time, an increase of 11 percentage points since November,” he said.

The CBI said at the weekend that private sector firms reported a slowdown in orders and sales growth in the three months to January. A survey of 629 businesses across the distribution, manufacturing and service sectors showed the balance of firms reporting a rise in output at +9%, compared with +19% in the three months to December 2017.

Growth slowed across the board, although it remained above the long-run average in most sectors. Retail volumes declined in the quarter to January, continuing the trend of flat or falling volumes since October 2017.

Anna Leach, the CBI’s head of economic intelligence, said there was a slight pick-up in activity forecast by firms for the next three months, but struggling retailers dragged down the recovery.

“Our surveys suggest that growth has slowed across the board,” she said. “But it’s retailers that are once again bearing the brunt as inflationary pressures continue to squeeze consumer-facing businesses.”

The accountancy group Deloitte said its consumer confidence survey was more upbeat, despite remaining at the same level in the three months to December as the three months to the end of September. People were more confident about hanging on to their jobs, but less confident about finding new ones.

Ian Stewart, the firm’s chief economist, said that despite a fierce squeeze in spending power last year, consumers went into 2018 “in pretty good spirits”.

He said: “With record levels of job vacancies and an economy that continues to grow we would expect wage growth to edge higher this year as inflation eases. The worst of the squeeze on incomes is probably behind us.”