That shrinking feeling: consumer spending falls again

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People cut outgoings in the face of the recession with household spending falling 0.2 per cent on the previous quarter.

It is the biggest drop in expenditure since the beginning of 1995 and the first time there has been two consecutive quarters of decline since the recession of the early Nineties.

Today's figures confirmed the economy shrank by 0.5 per cent in the same three-month period and a UK recession, defined as two successive quarters of negative growth, looks set to be officially confirmed in January. The Bank of England has said it expects the economy to shrink until the middle of next year.

The Government is hoping its decision to cut VAT by 2.5 per cent, announced in the pre-Budget report, and the recent 1.5 per cent cut in interest rates will kick-start consumer spending.

But Jonathan Loynes, chief European economist at Capital Economics, said: "The dip in household spending confirms that the housing downturn is hitting overall consumer activity hard. The 2.5 per cent cut in VAT won't do a great deal about that." Howard Archer, chief UK and European economist at IHS Global Insight, said: "It looks horribly like the fourth quarter will see even deeper contraction."

It came as figures showed London households spend less on leisure and more on housing than any other region in the UK.

Families in the capital spent an average of £48 per week on recreation - 17 per cent below the national average of £57.50.

Londoners' average weekly mortgage payments were significantly higher than the rest of the country and rent prices were double, Office of National Statistics figures show.