A bus bearing the words "Brexit to cost £2,000 million a week" drives past a statue of Britain's World War II leader Sir Winston Churchill and the scaffolding covered Elizabeth Tower, which contains the bell known as "Big Ben", of the Houses of Parliament at the start a national campaign tour in central London, Wednesday, Feb. 21, 2018. The anti-Brexit bus on Wednesday started an eight day tour, intending to make 33 stops in towns and cities across Britain, with speaker events featuring local business leaders, trade unionists, and politicians. (AP Photo/Matt Dunham)

UK growth in 2017 downgraded as consumer spending wanes

February 22, 2018 - 4:58 am

LONDON (AP) — The British economy did not grow as strongly as initially anticipated in the final quarter of 2017 amid a slowdown in consumption and business investment, official figures showed Thursday.

The Office for National Statistics said the British economy expanded by a quarterly rate of 0.4 percent, down from the initial estimate of 0.5 percent.

The downgrade is not huge but confirms that the economy cooled in 2017, the year after the country voted to leave the European Union. The statistics agency also lowered its 2017 growth estimate to 1.7 percent from the previous 1.8 percent.

From being one of the fastest-growing economies in the Group of Seven leading industrial nations, Britain is now one of the slowest, largely because of uncertainty surrounding Brexit.

Agency statistician Darren Morgan said some consumer-facing industries slowed "as price rises led to household budgets being squeezed."

That squeeze on household incomes is due to end this year, according to Bank of England Governor Mark Carney, as wage rises are forecast to outstrip inflation. Currently, wages are growing about 2.5 percent on average against price increases of about 3 percent, — a development that has seen consumption growth drop. The main reason why inflation has risen since the Brexit vote is the pound's sharp fall which, raised the cost of imported goods like energy and food.

Though the impact of the falling pound is set to diminish over the year, Brexit, due in March 2019, is still the biggest cloud over the economic horizon this year. Top ministers in the British government are gathering at Prime Minister Theresa May's country retreat Thursday to try to forge a consensus on the way ahead in discussions with the EU.

"The effect of the uncertainty around future trading relationships is having an impact on the demand side of the economy," Carney told lawmakers Wednesday. "I don't think that's controversial, it's pretty clear ... We have moved from the top of the pack to the bottom."

The pound slipped after the downgrade, trading 0.2 percent lower at $1.3888 as traders think it may ease the pressure on Carney and his fellow policymakers to increase interest rates again as soon as May.

"Today's latest reading shifts the landscape somewhat and proves that there are a number of hurdles to clear before he can pull the trigger," said Dennis de Jong, managing director at UFX.com.

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