Households put the brakes on spending as weak pound squeezes budgets

Household spending growth has slowed to its weakest pace for two and a half years as the weak pound squeezes family budgets, official figures show.

Private consumption - the engine of economic growth in recent years - increased by just 0.1% in the second quarter of the year, according to data from the Office for National Statistics (ONS).

It was the slowest increase since the end of 2014, blamed on the sharp fall in the pound since the Brexit vote, which has resulted in higher inflation.

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

The figures were contained in the latest official reading of economic growth, which confirmed an initial estimate that GDP rose by 0.3% in the May-June period, ticking up just slightly from the 0.1% first quarter rise.

They also revealed business investment growth ground to a halt, with no increase in the period.

Separate figures on Thursday from the CBI showing falling retail sales also painted a gloomy picture of the consumer economy.

Darren Morgan, ONS head of GDP, said: "GDP growth has slowed markedly in the first half of the year.

"Household spending grew weakly, with the lower-value pound hitting household budgets, while business investment showed no growth at all."

Sterling has fallen by around 15% against a basket of currencies since the Brexit vote in June.

It dipped to an eight-year low against the euro this week.

The pound's weakness has meant higher import prices, helping to drive inflation to a near four-year high in May, though it has since slipped back a little.

Wage growth has failed to keep pace with the price increases, leaving workers worse off in real terms.

That has dragged on the strong consumer spending which has fuelled economic growth over the last couple of years.

There was some evidence of consumers delaying their purchases of cars or "big ticket" household items "as factors such as the squeeze on real wages and the weaker value of sterling weigh on household spending decisions", the ONS said.

But the ONS also said the slowdown in the second quarter was driven by a decline in spending on transport, including cars, corresponding with industry data showing a downturn in new car sales following changes to vehicle excise duty.

Separately, a CBI survey found retail sales in the year to August falling at their fastest pace since last summer, with sales for the time of year "considered to be below seasonal norms to the greatest extend since October 2014".