British household spending in biggest fall since 1980
Figures released today by the Office of National Statistics (ONS) revealed that spending by British households fell by 1.2% in the first three months of 2009 – the largest fall since 1980.
According to the ONS, the only positive contribution to growth was Government spending.
In addition to the fall in household spending, the ONS said compensation for employees (wages and salaries) declined by 1.1% in the three month period – the largest fall ever recorded.
However, on a positive note, the fall in manufacturing output was less severe than originally reported – down 5.5% rather than the 6.2% announced.
The figures also confirmed that GDP fell by an unrevised 1.9% during the period and follows the 1.6% fall during the final quarter of 2008.
The Bank of England (BoE) expects GDP to fall at an annual rate of 4.5% at the start of the April to June period, with growth forecasted to resume at the start of 2010. It is then expected that the economy will show a growth rate of around 2.5% in two years time.
In a bid to stimulate the economy and aid recovery, the BoE has reduced interest rates to an historic low of 0.5% and has pressed ahead with quantitative easing (also known as printing money) – a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.
Meanwhile, earlier this week, credit rating agency Standard & Poor’s (S&P) revised its outlook for the UK from ‘stable’ to ‘negative’ following the announcement that Government borrowing soared to almost £8.5 billion in April.
Official figures show that public sector net borrowing rose to £8.46 billion last month, more than four times the £1.84 billion figure in April last year.
It is the first potential downgrade of UK public debt since the agency began rating Government debt more than 30 years ago.