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Economy grows by 0.3% as sluggish start to year continues

The services sector boosted growth in Q2.

The UK economy maintained its sluggish start to the year, despite growth accelerating in the second quarter thanks to a rebound from the services sector.

The Office for National Statistics (ONS) said gross domestic product (GDP) came in line with economists’ expectations, growing by 0.3% in its initial estimate for April to June.

It marked a slight improvement on the 0.2% growth seen during the first quarter of the year, but failed to match a reading of 0.7% for the final three months of 2016.

The second quarter performance was underpinned by the services sector, with output expanding by 0.5% between April and June, up from 0.1% for the quarter before.

However, the construction and manufacturing industry held back the economy, falling by 0.9% and 0.5% respectively for the period.

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(PA Graphics)

The brighter second-quarter performance for the services sector was driven by the retail and the film industry.

Distribution, hotels and restaurants expanded by 1.1% over the period, adding 0.15 percentage points to GDP growth.

Motion pictures were the second biggest contributor from the services sector, growing by 8.2% and bolstering GDP by 0.07 percentage points.

The ONS said there was evidence that tax relief on film production has helped boost the industry in recent years. However, manufacturing swung from 0.3% growth in the first three months of the year to a 0.5% decline for the second quarter following a slowdown in motor vehicle production.

Separate figures for Britain’s powerhouse services sector, which accounts for around 80% of the UK economy, showed output grew by 0.2% between April and May.

On an annual basis, GDP grew by 1.7% in the second quarter of 2017, compared with the same period last year.

Sterling was down slightly against the dollar on the news, trading at 1.30 against the greenback. The pound also fell against the euro following the release, but remained 0.1% up on the day at 1.12 euros.

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The second-quarter update comes after a series of downgrades from economists (PA)

Ben Brettell, senior economist at Hargreaves Lansdown, said there were “tentative signs” that growth may improve in the second half of the year.

He said: “Last week saw news that retail sales rose ahead of expectations, indicating the consumer may still have some petrol in the tank – though the Bank of England has expressed caution over rising levels of personal debt.

“Meanwhile, inflation began to recede, which if it continues in the coming months could end the squeeze on real incomes.”

The second-quarter update comes after a series of downgrades from economists who are anticipating GDP to slow in the coming years as Britain embarks on its EU divorce.

Professional services firm PwC expects GDP to grow by 1.5% in 2017, revising down a previous estimate of 1.6% growth.

The likelihood of the Bank’s Monetary Policy Committee (MPC) hiking interest rates from record lows of 0.25% shifted down a gear when the latest inflation figures came in at 2.6% for June, down from a near four-year high of 2.9% in May.

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