Household spending falls to three year low as United Kingdom economy grows

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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. The lack of clarity about what the future relationship with the European Union will look like is weakening confidence among consumers and businesses.

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.

The BoE agents' surveys have found that businesses' investment intentions have been ticking upwards this year, after falling steeply following last year's referendum.

The UK economy grew in line with expectations in the second three months of the year, according to official figures released on Thursday (24 August).

The Office for National Statistics (ONS) said the amount of money spent by United Kingdom households grew by just 0.1 per cent in the second quarter, down from 0.4 per cent for the first three months of the year.

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However, the slowdown also appeared to be affected by a fall in auto sales in the second quarter after motorists had earlier in the year rushed to beat an April increase in tax on high-polluting vehicles.

"We are seeing the impact of the squeeze in real living standards given inflation rates higher than annual wage and salary growth", he said. This corresponds with reports from the society of motor manufacturers and traders (SMMT) that sales of new cars increased in Quarter 1, followed by a decline in the new auto market in Quarter 2, as a result of changes to Vehicle Excise Duty (VED). The ONS said this could be related to a change to auto taxes that prompted consumers to bring forward their vehicle purchases to the first quarter of the year. He said that this indicated the "dip was probably temporary".

ONS head of GDP Darren Morgan said: "Growth has slowed markedly in the first half of the year with relatively robust services growth, partly thanks to a booming film industry, offset by weak performances from manufacturing and construction in the second quarter".

The accompanying Business investment figures also painted a gloomy picture of the UK's future growth potential as the ONS reported that the risks posed by Brexit caused investment to remain flat in the second quarter.

The slowdown in growth in household spending in Quarter 2, compared with 0.4% growth in Quarter 1, was driven by a decline in growth in household expenditure on transport (including motor cars).