Families ration their fun as the credit crunch bites by cutting back on beer and eating out

Millions are cutting back on restaurant meals, pints at the pub, gym memberships and nights at the cinema because of the credit crisis, it was claimed yesterday.

Household spending cuts during the first three months of the year are the biggest since 2001, said the Confederation of British Industry.

Such belt tightening is a result of the soaring cost of living which has seen domestic energy, food and petrol and diesel prices rocket along with mortgage repayments over the last 12 months.

The travel industry is one of the few to benefit, as families seem determined to reward their self-denial with a holiday.

The CBI's top economist, Ian McCafferty, issued a stark warning to the service sectors of British industry.

'Consumers are reining in spending on leisure, entertainment and eating out,' he said. 'Services sector firms are concerned about their business prospects.'

Travel operators were the only part of the sector to report a rise in turnover in the first quarter.

'People are more inclined to take a well-earned break as rising costs put greater demands on household spending,' said Mr McCafferty.

The warning is the latest evidence that spiralling bills and mortgages costs are putting families under intolerable strain.

The group did, however, offer some comfort for hard-pressed households with its suggestion that recent price rises would begin to ease a little this year.

After two and a half years of ' indigestible' inflation, price hikes at restaurants, bars and gyms will fall back in step with long-term trends in the second quarter.

The CBI said holiday operators felt unable to pass many of their higher costs on to the public but other consumer services firms raised prices at their fastest rate in a year.

These increases were offset by employment costs, which held profits back, according to the figures.

Restaurants and food-led pubs have begun reporting that their customers are spending less, with pubs particularly at the sharp end of the slowdown.

Marcelo Soares, operations director at the Meredith Group, a three-strong London pub group, said: 'Customers are being more careful on their wine spending.

'Instead of two bottles they'll drink one and if it's a party, they are replacing expensive champagne with sparkling wine.'

Britain's biggest landlord, Enterprise Inns, recently warned that the number of publicans asking for financial support more than doubled over the last six months.

Ted Tuppen said recent trading has been 'the worst I can ever remember' as drinkers cut down on nights out.

More than 800 pubs out of Enterprise's 7,785- strong estate have asked for help with their rent and discounts on beer, with many at risk of going bust if trade doesn't improve over the coming months.

Mark Brumby at City broker Blue Oar estimates that four pubs are calling time on business each day as trade continues to fall sharply.

Iain Loe of the Campaign for Real Ale said: 'The biggest threat to pubs is the smoking ban and the fact that customers now have much less money to spend.' Signs of the growing gloom in the services industry, which accounts for over half of economic output, will come as a major blow to Chancellor Alistair Darling.

He is relying on buoyant consumer spending to keep the economy afloat and the tax tills ticking over.

The news could also add to fears that unemployment will rise.

The CBI predicts pubs and restaurants will cut jobs again in the current quarter, making nine months in a row of falling employment in the leisure industry.

Official figures show the credit drought has begun to strike at the heart of the economy.
Output in the services sector fell to its lowest level in more than four years in April due to the freeze in wholesale credit markets, the Bank of England reported.

The International Monetary Fund believes the economy will all but grind to a halt by the end of the year.