26/07/2017 16:39 BST | Updated 27/07/2017 02:22 BST

Economy's Weak 2017 Performance So Far Lowers Chance Of Interest Rates Increase

The UK economy has struggled to gather pace following a lacklustre start to the year, diminishing the chance of the Bank of England hiking interest rates in the coming months. 

The Office for National Statistics (ONS) said gross domestic product expanded by 0.3% in its initial estimate for the second quarter, up from 0.2% during the first three months of the year. 

A stronger performance from the services sector ensured the economy eked out a small rebound, but failed to return to levels seen in the final quarter of 2016 when GDP grew by 0.7%. 

Sterling slipped against the US dollar and euro following the release, tracking 1.30 and 1.12 respectively.

Darren Morgan, ONS head of GDP, said the economy experienced a "notable slowdown" in the first half of the year. 

Chancellor Philip Hammond defended the Government's record, saying it had delivered four and a half years of growth but would not be "complacent". 

Britain's powerhouse services sector, which accounts for around 80% of the economy, was the brightest performer thanks to strong results from the retail and film industries. 

Services output lifted to 0.5% between April and June, compared with 0.1% in the first quarter, helping offset hefty slumps from the construction and manufacturing sectors.

Distribution, hotels and restaurants expanded by 1.1% despite concerns that sluggish wage growth and higher inflation were driving consumer spending lower. 

Motion pictures provided the second biggest contributor to growth from services, expanding by 8.2% and bolstering GDP by 0.07 percentage points.

Tax breaks for British film production has helped the industry thrive since 2014, while strong takings for blockbusters Pirates Of The Caribbean: Dead Men Tell No Tales and Wonder Woman gave an extra leg up during the second quarter.

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."

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.

Meanwhile, separate figures for the services sector showed output grew by 0.2% between April and May.

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

Chris Williamson, chief business economist at IHS Markit, said: "The confirmation of the lacklustre performance of the economy so far this year surely also diminishes the chance of an interest rate hike any time soon, especially as growth prospects for coming months have become increasingly skewed to the downside."

The likelihood of the Bank's Monetary Policy Committee (MPC) increasing interest rates from record lows of 0.25% had already 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.