Inflation puts the brakes on Britain’s economic activity

https://www.theguardian.com/business/2017/apr/24/inflation-britain-economic-activity-brexit Official GDP estimate – due on Friday – will reflect how weaker pound has pushed up the cost of imported goods

Britain’s economy cooled considerably in the first three months of the year as higher inflation put a squeeze on disposable incomes, official figures are expected to show this week.

The economy shrugged off the shock of the Brexit vote last June and has been surprisingly resilient, with growth rates of 0.5% in the third quarter of 2016 and 0.7% in the final quarter.

But in a turn of fortunes, City economists are forecasting a tough year ahead, with a sharp slowdown in growth to 0.4% between January and March. This would be the weakest performance since the first quarter of 2016, when the economy grew by 0.2%. The Office for National Statistics is due to publish its initial estimate for first quarter GDP on Friday.

Brexit and the health of the economy will form a central part of the general election campaign waged in the run-up to the snap poll on 8 June. The work and pensions minister, Damian Green, said on Sunday that the Conservative party’s election manifesto would focus on the Brexit negotiations and domestic concerns such as strengthening the economy.

The negative effects of sterling’s slide since the EU referendum appear to be outweighing the positive effects – a boost to exports. The weaker pound has raised the cost of imported materials and pushed inflation to a three-year high of 2.3%.

This meant that real wages – adjusted for inflation – fell in February for the first time in two and a half years, even though unemployment continues to drop and vacancies are at record levels.


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