Spending rises as growth slows

Nov 24 2007 by Peter McCusker, The Journal

HOUSEHOLDS spent more in the third quarter of the year despite signs of slowing UK growth, official figures showed yesterday.

Household expenditure rose 1% in the three months to September – up from 0.8% in the previous quarter – but the overall economy expanded by 0.7%, a slower rate than in the first half of 2007.

Consumers spent more on goods and services, according to the Office for National Statistics (ONS), although this is unlikely to continue as five interest rate hikes in 15 months bite, experts said.

Global Insight’s chief economist Howard Archer said: “Consumer spending seems certain to moderate in the face of the marked overall rise in interest rates, tighter lending conditions, heightened debt levels and a slowing housing market.”

The ONS data confirms the first period of slower growth after the economy expanded by 0.8% for the past three quarters.

This trend is set to continue with Bank of England policy- makers expecting a sharper slowdown in the first half of next year as the rate hikes made to keep a lid on inflation begin to put the brakes on the economy.

Economists were split over the impact of yesterday’s figures on prospects for interest rates.

Mr Archer – now expecting 1.9% growth in 2008 compared to 3.1% this year – is predicting three cuts.

But Capital Economics’ Jonathan Loynes said: “With growth still solid in the third quarter, the Monetary Policy Committee may want to see firmer signs of a slowdown before loosening policy.”