Britain's economy made a sluggish start to the year as household spending saw its sharpest quarterly fall in almost two years, data showed today.
The figures highlight the challenge facing the government as it tries to rein in Britain's budget deficit and will reinforce expectations that UK interest rates will stay at record lows for some months to come.
Figures from the Office for National Statistics confirmed Britain's economy grew just 0.5% in the first quarter after contracting by the same magnitude in the last three months of 2010. Annual growth was unrevised at 1.8%.
Economists had not forecast any revision and expect growth to remain subdued for some time as the economy battles headwinds from public spending cuts, high inflation and weak consumer confidence.
A breakdown of the figures showed that household spending contracted by 0.6% on the quarter, its biggest drop since the second quarter of 2009 when the economy was still in recession.
In a sign of mounting price pressures, the implied GDP deflator rose by 1.8% on the quarter, its biggest quarterly rise since 1996. One bright spot was a reduction in Britain's trade deficit which decreased to £5.7 billion sterling in the first quarter from £11.5 billion at the end of 2010.
Despite the sluggish return to growth, finance minister George Osborne has refused to water down his plan to cut Britain's budget deficit through tax rises and spending cuts.
The government's fiscal watchdog has forecast growth of 1.7% for the full year but economists are sceptical that this will be achieved. The OECD today revised down its UK growth forecast for 2011, projecting growth of just 1.4%.
