LONDON – Britain's economy slowed in the first three months of the year as concerns about the U.K.'s exit from the European Union spurred inflation and forced consumers to rein in spending.
The economy expanded 0.3 percent from the previous quarter, below the 0.4 percent that was expected and less half the 0.7 percent it grew at the end of 2016, the Office for National Statistics said Friday.
The pound has fallen about 20 percent against the dollar and euro since Britain voted to leave the EU, pushing up the cost of many imported goods. That seems to be hurting consumers — potentially bad news for the government only a few weeks before a general election.
In another signal that what was once the fastest-growing major economy is hitting the skids, Britain's second-biggest mortgage provider said Friday that house prices fell for a second consecutive month.
"Rising inflation is eating into household spending power and that now looks to be holding back GDP considerably," Paul Sirani, chief market analyst at Xtrade, said in a note to investors. "The marked dent in GDP stems from consumers tightening their belts in the face of rising living costs and businesses becoming more cautious over investments."
Until recently, Britain's economy has defied expectations of a post-Brexit slump, leading the government to attack opponents for being overly pessimistic. The economy expanded 2 percent last year, the fastest rate among the Group of Seven industrialized nations.
Prime Minister Theresa May has called early elections for June 8 in an effort to increase her majority in Parliament and strengthen her hand in negotiations with the EU and bolster the economy.
But the U.K. economy is heavily dependent of consumer spending and inflation is eating away at disposable income. Consumer price inflation rose to 2.3 percent in the 12 months through March, from very low levels in 2015.
The recent slowdown in economic growth was driven by consumer-focused industries such as retail, accommodation and the sale and repair of vehicles, all of which declined in the first quarter, according to the ONS.
And when it comes to the biggest investment of all — buying a home — people are becoming more cautious.
Average house prices across the country fell 0.4 percent in April, after a 0.3 percent drop the previous month, according to a monthly index compiled by Nationwide Building Society.
Nationwide's chief economist, Robert Gardner, said that monthly figures can be volatile, but the softening reflects pressure on household budgets.
"Given the ongoing uncertainties around the U.K.'s future trading arrangements and the upcoming election, the economic outlook is unusually uncertain, and housing market trends will depend crucially on developments in the wider economy," he said.
The British Banker's Association piled onto the string of poor news with a report showing that the annual growth in consumer borrowing had slowed. Eric Leenders, BBA managing director for retail banking, said the figures mirrored "the dip seen in retail sales volumes as price rises appear to have started biting into consumers' spending."