Philip Hammond has admitted that consumers are suffering from the pound’s sharp post-referendum fall, after what government statisticians have called a “notable slowdown” in growth in the first half of the year.

The economy grew by just 0.3% in the second quarter of 2017 following 0.2% expansion in the first three months of the year, Office for National Statistics figures showed.

The chancellor, who says businesses and households are being affected by the lack of clarity about Brexit, put the sharp easing of growth in the past six months down to the squeeze on the cost of living caused by dearer imports.

“Consumers are being affected by the inflation that was created by the depreciation of the currency in the autumn of last year. That will pass through the economy, but I absolutely recognise it’s painful as it’s passing through the economy,” Hammond said in an interview with ITV News.

The expansion in the three months to June was in line with City expectations that the weakness of the economy meant no chance of an increase in interest rates by the Bank of England next week.

Official data for gross domestic product showed that of the three big sectors of the economy, only services were bigger at the end of June than in March.

Services, which account for almost 80% of the economy’s output, posted growth of 0.5% over the quarter. Industrial production, which includes manufacturing, fell by 0.4%, while construction was down by 0.9%.

Q&A What is gross domestic product (GDP)? Show Hide Gross domestic product (GDP) measures the total value of activity in the economy over a given period of time. Put simply, if GDP is up on the previous three months, the economy is growing; if it is down, it is contracting. Two or more consecutive quarters of contraction are considered to be a recession. GDP is the sum of all goods and services produced in the economy, including the service sector, manufacturing, construction, energy, agriculture and government. Several key activities are not counted, such as unpaid work in the home. The ONS uses three measures that should, in theory, add up to the same number. • The value of all goods and services produced – known as the output or production measure.

• The value of the income generated from company profits and wages – known as the income measure.

• The value of goods and services purchased by households, government, business (in terms of investment in machinery and buildings) and from overseas – known as the expenditure measure. Economists are concerned with the real rate of change of GDP, which accounts for how the economy is performing after inflation. Britain's government statistics body, the Office for National Statistics, produces GDP figures on a monthly basis about six weeks after the end of the month. It compares the change in GDP month on month, as well as over a three-month period. The ONS warns that changes on the month can prove volatile, preferring to assess economic performance over a three-month period as the wider period can smooth over irregularities. The most closely watched GDP figures are for the four quarters of the year; for the three months to March, June, September and December. The figures are usually revised in subsequent months as more data from businesses and the government becomes available.

The ONS also calculates the size of the UK economy relative to the number of people living here. GDP per capita shows whether we are actually getting richer or poorer, by stripping out the impact of population changes. Richard Partington

When adjusted for a rising population, Britain’s economic growth came to a virtual standstill in the first half of 2017. Growth per head was up 0.1% in the second quarter after being flat in the first quarter. Over the year since the Brexit vote, GDP per head has risen by 1% and is only 1.9% higher than it was before the economy plunged into recession in early 2008.

Darren Morgan, head of national accounts at the Office for National Statistics, said: “The economy has experienced a notable slowdown in the first half of this year. While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.”



The economy confounded predictions that it would plunge into recession after the EU referendum last June, posting stronger growth in the second half of 2016 than in the first half.

The fall in the value of the pound has pushed up inflation and made life tougher for consumers since the turn of the year.



Brexit economy: sterling fall hits public finances and fails to boost trade Read more

Retail activity was the biggest single contributor to growth in the second quarter but this followed a fall in the first quarter. The ONS said spending in the shops and online was broadly flat in the first half of the year.

The ONS said the film industry played a significant role in the modest rise in GDP from the first quarter, adding almost 0.1 percentage points to growth.

A spokesman said the boost to film production was the biggest factor, but added that ticket sales for Wonder Woman and the latest in the Pirates of the Caribbean franchise also played a part.

Despite buoyant survey evidence, the hard economic data from the ONS showed manufacturing was struggling. UK factories saw production fall by 0.5% during the second quarter, largely due to a drop in motor vehicle output.

UK suffers 'notable slowdown' as GDP rises by 0.3% in second quarter of 2017 - business live Read more

In the year to the second quarter, the economy grew by 1.7%, down from 1.9% in the first quarter.

John McDonnell, the shadow chancellor, said: “Today’s GDP figures reveal weak growth under a weak government, and expose the last seven years of Tory economic failure.

“Growth for the first half of 2017 is below expectations, and it follows continued data showing working families are being squeezed with wages not keeping up with prices. The truth is that the Tories’ austerity cuts have undermined working people’s living standards and weakened the UK economy.”

Chris Williamson, the chief business economist at IHS Markit, said: “These meagre growth rates indicate that the economy has lost momentum in 2017, and will consequently fail to achieve the 1.8% expansion seen in 2016.



“The second quarter growth was below the 0.4% expansion anticipated by the Bank of England, and therefore suggests we will see the central bank revise down its forecasts for the economy next week from the 1.9% growth it has currently penciled in.