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UK economy slows more than expected in Q1 as inflation hits

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Britain's economy slowed more than previously thought in the first three months of 2017 as rising inflation boosted by last year's Brexit vote took a toll on household spending, official figures showed on Thursday.

[LONDON] Britain's economy slowed more than previously thought in the first three months of 2017 as rising inflation boosted by last year's Brexit vote took a toll on household spending, official figures showed on Thursday.

Just two weeks before Britons go to the polls in an early election called by Prime Minister Theresa May, the Office for National Statistics said Britain's economy expanded at its slowest rate in a year in the three months to the end of March.

Gross domestic product grew by just 0.2 per cent compared with an earlier estimate of 0.3 per cent, the ONS said.

Most economists polled by Reuters had forecast the rate of growth would stay unchanged, which already marked a steep slowdown from the rapid 0.7 per cent pace achieved in the final three months of 2016.

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Year-on-year growth in early 2017 fell to two per cent from an initial estimate of 2.1 per cent growth.

"UK GDP growth slowed ... as consumer-facing industries such as retail and accommodation fell and household spending slowed. This was partly due to rising prices," the ONS said.

After adjusting for inflation, household spending in the first quarter of 2017 rose by just 0.3 per cent, its smallest amount since the final three months of 2014.

While business investment picked up, growing by 0.6 per cent on the quarter, net trade lopped 1.4 percentage points off the quarterly GDP growth rate.

Britain's economy grew 1.8 per cent last year, one of the fastest rates among the world's seven largest advanced economies.

But the economy relied heavily on consumer spending, which this year has come under increased pressure from rising inflation as stores push up prices in response to sterling's sharp fall after the June 2016 Brexit vote.

British election campaigning is on hold after Monday's suicide bomb attack in Manchester, but previously Prime Minister May had highlighted Britain's record-high employment level while campaigning.

The Bank of England said earlier this month that it expected first-quarter growth to be revised up to 0.4 per cent, and for the economy to grow 1.9 per cent this year, barely changed from 2016.

While it expects growth in household consumption to slow to 1.75 per cent this year as inflation approaches three per cent, it forecast export volumes would rise by 2.75 per cent and business investment would rise by 1.75 per cent.

Most private-sector forecasters polled by Reuters see a slightly sharper slowdown, however, predicting overall growth of 1.7 per cent.

Few expect the BoE to raise interest rates before 2019 as inflation is forecast to fall next year once the impact of sterling's weakness fades, while uncertainty during the nearly two years of Brexit talks ahead is predicted to drag on growth.

Mrs May - who opinion polls suggest is on track for a comfortable victory in the election - has said she wants a bigger parliamentary majority to strengthen her hand in Brexit talks which must be completed before the end of March 2019.

REUTERS

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