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Weaker Pound takes toll on British household spending

Year-on-year spending growth dropped to 2.0 percent from 2.6 percent after expanding just 0.1 percent in the second quarter Photograph: (Reuters)

Reuters London, United Kingdom Aug 24, 2017, 10.03 AM (IST)

British household spending grew at its weakest pace since late 2014 in the three months to June as the effect of a weaker pound since last year's Brexit vote weighed on Britons' spending power, official statistics showed on Thursday.

Year-on-year spending growth dropped to 2.0 percent from 2.6 percent after expanding just 0.1 percent in the second quarter, the Office for National Statistics said.

Overall growth in gross domestic product was unrevised from an earlier estimate at 0.3 percent on a quarterly basis and 1.7 percent annually, the ONS added - representing the weakest start to any year since 2012.

"GDP growth has slowed markedly in the first half of the year," ONS statistician Darren Morgan said. "Household spending grew weakly, with the lower-value pound hitting household budgets," he added.

Sterling has fallen by around 15 percent on a trade-weighted since June 2016's vote to leave the European Union, pushing consumer price inflation to its highest in nearly four years in May, and added to its losses after the latest data.

Thursday's figures also showed that year-on-year business investment growth slowed to zero from 0.7 percent in the first quarter, while net trade dragged down the annual growth rate by 0.5 percent.

Britain's economy grew 1.8 percent last year, one of the fastest rates among the world's seven largest advanced economies, capped by the growth of 0.7 percent in the last three months of the year.

But that growth relied heavily on robust 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 Brexit vote.

The Bank of England said earlier this month that it expected the economy to grow 1.6 percent this year - slower than it had previously forecast but in line with the average expectation of economists polled by Reuters.

While it expects growth in household consumption to slow to 1.75 percent this year as inflation approaches 3 percent, it forecast export volumes would rise by 3.5 percent and business investment would rise by 1 percent.

Few economists 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 two years of Brexit talks is predicted to drag on growth.

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