UK election 2017: Economic growth falls below City expectations in blow to Government

Britain's economic growth slowed dramatically at the start of the year as millions of households tightened their belts amid fears of a living standards squeeze, figures revealed today.

In a blow to Chancellor Philip Hammond just weeks before the General Election, GDP grew by just 0.3 per cent in the first three months of 2017.

The figure was sharply down on 0.7 per cent from the end of 2016 and below City expectations of 0.4 per cent.

A slump on the High Street was the biggest single blow to economic growth.

Figures from the Office for National Statistics showed that output from the distribution, hotels and restaurants sector — which includes the retail industry — fell by 0.5 per cent in the quarter, compared with a two per cent rise in the previous three months.

Economists are warning that rising inflation, partly blamed on the post-Brexit vote slump in the value of the Pound, is set to take more steam out of the economy.

Responding to the gloomier-than-expected news, Mr Hammond stressed that the British economy “is resilient” and warned of “tough and complex” Brexit negotiations ahead.

“That’s why we need strong and stable leadership and a clear mandate to get the best possible deal for Britain,” he added.

However, shadow Chancellor John McDonnell said the figures revealed the “threat to living standards under the Tories”.

“There is no hiding from the truth. The Tories’ economic plan has undermined the UK economy.

Liberal Democrat economic spokeswoman Baroness Susan Kramer claimed the figures showed a “Brexit slowdown” is beginning to take effect.

The 0.5 per cent fall in the distribution, hotel, shops and restaurants sector is the biggest since the first quarter of 2010 when Britain was still recovering from the post banking crisis recession.

The GDP number comes a week after the sharpest fall in retail sales for seven years and as Nationwide said house prices fell for the second month running in April, dragging the year-on-year growth rate down to 2.6 per cent, the weakest since June 2013.

Accelerating inflation following the “Brexit devaluation” means that the cost of living is outstripping earnings for the first time since 2014, squeezing the spending power of shoppers.

A number of major retail chiefs, including Next boss Lord Wolfson, have warned of tough conditions ahead as consumers rein in their spending.

The dominant services sector, which accounts for more than three quarters of the economy, expanded by just 0.3 per cent, the slowest rate for two years. Ian Stewart, chief economist at consultants Deloitte, said: “Growth is slowing, but this looks like a cooling, not collapse, in UK activity.

“Inflation will continue to squeeze the consumer but the outlook for manufacturing and exports has brightened.”

The Institute for Fiscal Studies warned of a looming squeeze in living standards with wages, once inflation is taken into account, set to fall.

A report on the labour market highighlighted how young workers, and men rather than women, had seen the biggest fall in earnings since the financial crash in 2008, despite bouncing back in recent years.

The pay of workers aged 30-39 had been hardest hit, down by 8.7 per cent between 2008 and 2016, followed by a drop of seven per cent for the 22-29 age group, with the least hit being workers over 60, seeing a fall of 3.1 per cent.

The low paid is the only group whose wages have recovered to above 2008 levels, driven up by the National Living Wage.