Household spending slowdown points to rate cut

British households put the brakes on their spending at the end of last year, according to official figures released yesterday that may remove an obstacle to further cuts in interest rates.

British households put the brakes on their spending at the end of last year, according to official figures released yesterday that may remove an obstacle to further cuts in interest rates.

There was also relief that the estimate for total economic growth in the final quarter of 2000 had not been revised up from a preliminary figure of 0.3 per cent, the weakest for two years. With no revision to the headline figure, analysts focused on the breakdown for expenditure that showed slower household spending, low Government expenditure but strong business investment.

Household spending slowed to 0.7, from 1.0 per cent in the previous quarter, to leave an annual growth rate of 3.3 per cent, the lowest for almost four years. The largest falls were in spending on food and on transport, which included a dramatic 8 per cent drop in spending on rail travel.

Jon Beadle, a statistician at the government's National Statistics (NS) department, said there was a drop of between £60m and £70m in rail ticket sales. The data covers the three months including and immediately following the Hatfield train crash.

Analysts were divided over the economic implications of lower spending. Ciaran Barr at Deutsche Bank said: "Overall weaker consumption figures will provide comfort to the Monetary Policy Committee." Earlier this week Mervyn King, a deputy governor at the Bank of England, said he wanted to see signs of a slowdown in consumer spending.

But Ross Walker, UK economist at the Royal Bank of Scotland, said: "A year-on-year rate of 3.3 per cent is still a healthy reading."

Other economists pointed out the headline 0.3 per cent growth rate was distorted by the weather. Oil and gas extraction tumbled 9 per cent and energy suppliers saw turnover shrink by 2 per cent. NS said without this, overall growth would have been 0.6 per cent. "That's still a reasonably buoyant rate of growth," said Michael Taylor at Merrill Lynch.

Earlier this month the MPC voted unanimously for a quarter-point rate cut but some members considered a half-point cut. Sir Edward George, the governor, said yesterday he had thought a 0.25 per cent cut was enough.

Separate figures showed the UK's trade gap widened to a record £2.8bn in December, 2000. This left a deficit for the year of £28.7bn, the largest since records began some 300 years ago.

More timely figures for January showed the trade gap with North America narrowed as exports rose. Mr Walker said exports to US and Canada over the last three months were 27 per cent up on a year ago.

"This will go someway to alleviating concerns about contagion from the US," he said.