LDN - Business

Sluggish UK economy inches forward, Bank of England unlikely to act

[July 26, 2017] By Andy Bruce and William Schomberg

LONDON (Reuters) - Britain's economy gathered only a little speed in the second quarter after almost stalling at the start of the year, propped up by the services sector and a booming film industry, official figures showed on Wednesday.

Growth of 0.3 percent on the quarter was up from 0.2 percent in the first quarter, a figure that is likely to cement expectations that the Bank of England will keep interest rates on hold next week at their record low level.

The figure was in line with the median forecast in a Reuters poll of economists and it capped off the weakest first half to any year since 2012.

"To me, this is the final nail in the coffin for an August rate hike," said Alan Clarke, head of European fixed income strategy at Scotiabank.

Sterling edged down against the U.S dollar after the data was released and British share prices rose.

Britain's economy grew 1.8 percent in 2016 -- among the fastest of the world's seven largest major advanced economies, defying widespread predictions of recession after the vote to leave the European Union.

But the Brexit vote did lead to a big fall in the value of sterling, which has pushed up inflation, gnawing at consumers' disposable income this year.

"The economy has experienced a notable slowdown in the first half of this year," ONS statistician Darren Morgan said.

The services industry was the only driver of economic growth in the second quarter, helped by retailers, hotels and restaurants, as well as Britain's fast-growing film industry.

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Britain's Chancellor of the Exchequer Philip Hammond visits IBM's offices on the South Bank, London, July 26, 2017. REUTERS/Stefan Rousseau/Pool

The ONS said motion picture activities had grown by 72 percent since 2014, probably boosted by tax credits introduced by former finance minister George Osborne. The release of blockbuster films in the second quarter also helped.

Growth between April and June in year-on-year terms fell to 1.7 percent from 2.0 percent in the first three months of the year, in line with economists' average forecast.

The figures are unlikely to materially alter the analysis of Bank of England officials gearing up to set interest rates next week. Only two out of 80 economists in a Reuters poll published last week thought the BoE would raise rates next Thursday.

In June the central bank said it expected the economy to grow 0.4 percent in the second quarter.

On Monday the International Monetary Fund downgraded its 2017 economic outlook for Britain by more than any other rich nation, predicting growth of 1.7 percent compared with an earlier 2.0 percent estimate. It sees a further slowdown to 1.5 percent in 2018.

The preliminary estimates of GDP do not include a breakdown of spending, and are heavily based on estimated data.

(Editing by Catherine Evans)

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