Households feel the squeeze as UK GDP growth slows in first quarter

The British economy posted slowing growth in the first quarter of 2022 with the latest statistics showing that incomes were falling even as the economy was expanding.

Gross domestic product rose by 0.8 per cent in the first quarter of the year, a decline in growth from 1.3 per cent in the previous three months.

The Office for National Statistics (ONS) said real household disposable income dropped 0.2 per cent between January and March as income growth of 1.5 per cent was outstripped by household inflation of 1.7 per cent. “Our latest estimate for economic growth in the first quarter is unrevised as a whole, showing the UK continued to recover from the pandemic," said Darren Morgan, director of economic statistics at the ONS. “Both household incomes and spending rose in cash terms in the first quarter, leaving the rate of saving unchanged.

“However, once taking account of inflation, incomes fell again, for the fourth consecutive quarter.”

UK household incomes fell for a fourth consecutive quarter at the start of 2022, the longest run of declines since records began in 1955, as the cost of living crisis worsened.

Adjusted for inflation, disposable incomes dropped 0.2 per cent in the first three months of the year. It left incomes 1.3 per cent lower than a year earlier, even before April’s tax and energy bill increases kicked in.

The saving ratio, the proportion of income left unspent, was unchanged at 6.8 per cent.

The fall in incomes highlights the strain on households struggling to keep up with soaring prices of everything from energy and food to motor fuel and clothing. Prime Minister Boris Johnson is under mounting pressure to do more to help amid warnings that the economy is sliding into recession.

Output has been on a weakening path since January, and the Bank of England now expects a contraction in the second quarter as consumers tighten their belts.

Separate figures showed the current-account deficit, the gap between money coming into the UK and money leaving, widened sharply to £51.7 billion ($63bn) in the first quarter. That equated to a 8.3 per cent of GDP, a record for the quarter.

Meanwhile UK house price growth slowed more than expected this month after a series of interest-rate increases raised the cost of mortgages.

Nationwide Building Society said prices grew 0.3 per cent in June to £271,613 ($330,000), less than the 0.5 per cent gain that economists had expected. The annual pace of growth eased to 10.7 per cent from 11.2 per cent in May.

“There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer inquiries,” said Robert Gardner, Nationwide’s chief economist.