UK growth depressed by household spending slump

The parlous state of consumer and business confidence was underlined in the latest readings on GDP released by the Office for National Statistics yesterday. Analysts said the rise in VAT to 20 per cent in January had had an especially depressing effect.

The ONS left the preliminary estimate for growth in the national income unchanged at 0.5 per cent for the first quarter of the year, and added that consumer spending had seen its worst decline since the recession, falling by 0.6 per cent, on top of a 0.3 per cent decline at the end of 2010, squeezed by low wage growth, inflation and tax rises.

Yet the "rebalancing" of the economy away from consumption was not accompanied by any revival in investment – which was down more than 7.1 per cent on the quarter. Exports, though, rose by 3.7 per cent; were it not for that, the economy would be back in recession.

The CBI, meanwhile, confirmed the emerging picture of an economy where any "consumer facing" business faces a squeeze. "While business and professional services saw another quarter of modest growth in both volume and value of trade, consumer services firms saw an unexpectedly sharp decline in both," the business lobby said. Of those organisations surveyed, 16 per cent said volumes of business rose, but 39 per cent said they fell. The resulting net balance of minus 23 per cent is the weakest since November 2009.

Other possible engines of growth are showing mixed signals. The number of mortgages approved for home purchases slipped from 31,205 in March to 29,335 in April, the British Bankers' Association reported, though some of that may be down to bank holidays. Otherwise, net secured lending was marginally above the recent average and credit card lending a little firmer.