THE UK economic slowdown was even more dramatic than first feared in the opening months of this year as rising prices in the wake of the Brexit vote took their toll on consumer spending.

The Office for National Statistics said GDP grew just 0.2 per cent in the first quarter of 2017, a marked change of pace from the 0.7 per cent growth in the final three months of 2016. Economists had previously estimated the economy would grow 0.3 per cent in the first quarter.

There was no growth at all in the first quarter in GDP per head, which adjusts for the size of the population and is generally seen as a better guide to prosperity than mere GDP.

Economists had been expecting GDP growth to slow from 0.7 per cent in the fourth quarter of last year, but they had pencilled in growth of 0.3 percent for the first three months of 2017.

The ONS said: “Consumer-facing industries such as retail and accommodation fell and household spending slowed. This was partly due to rising prices. Construction and manufacturing also showed little growth, while business services and finance continued to grow strongly.”

The services sector put downward pressure on GDP after output was revised down to 0.2 per cent from 0.3 per cent for the first quarter. It means the powerhouse industry, which accounts for 78 per cent of the UK economy, slowed substantially from the 0.8 per cent growth seen between October and December last year.

Household spending was also dragging on overall growth for the first three months of the year after eking out its lowest quarter-on-quarter growth since 2014 at 0.3 per cent.

Sterling’s slump since the Brexit vote has bumped up the cost of the living as manufacturers and retailers pass down rising import prices to consumers.

Inflation hit its highest level in nearly four years last month at 2.7 per cent, as the Brexit-hit pound, electricity price hikes and rising air fares tightened the squeeze on household spending.

The Bank of England said earlier this month that inflation would peak at three per cent later this year.

Despite the first quarter’s inflation-induced slowdown, business investment grew by 0.6 per cent over the period thanks to a boost from machinery and intellectual property products.

However, net trade shaved 1.4 per cent off the quarterly GDP growth rate due to a jump in the number of imports. The statistics agency said manufacturing grew by 0.3 per cent in the first quarter, while total production and construction expanded by 0.1 pe cent and 0.2 per cent respectively.

It means GDP grew by 2 per cent in the first quarter of 2017 compared with the first three months of last year, revised down from 2.1 per cent.

Samuel Tombs, chief UK economist of Pantheon Macroeconomics, said the downward revision means the UK was now “tied at the bottom of the G7 growth leaderboard with the US and Italy”.

He added: “Households’ real spending increased by just 0.3 per cent quarter-on-quarter in Q1 – the smallest increase since Q4 2014 – as the import-led surge in inflation eroded spending power.

“Households also appear to have reduced their saving rate to a new record low to fund extra spending, because the one per cent rise in spending in nominal terms exceeded the 0.6 per cent rise in employees’ compensation. Households have compromised their ability to fund further increases in spending.”