The UK economy grew by 0.3% in the second quarter of the year, in line with market expectations, after the 0.2% increase in the first three months of 2017, according to data from the Office for National Statistics.
Taken together, the data for the first and second quarters indicate a first half performance that was lacklustre and suggest that the Bank of England will likely keep interest rates unchanged for the time being.
Second quarter growth was driven by the services sector which grew 0.5%. The largest contributors to growth in services were retail trade, which improved after a fall in the first quarter, and film production and distribution.The construction and manufacturing sectors weighed down on growth as they contracted by 0.9% and 0.5% respectively.
In 2016, UK GDP held up well, growing 1.8% despite predictions that Brexit will lead to recession. On Monday, the International Monetary Fund downgraded its forecast for UK GDP growth to 1.7% from 2.0% previously.
Ben Brettell, senior economist at Hargreaves Lansdown said in a note that despite the lacklustre growth so far, there are tentative signs of improvement in the second half, citing the decent data on retail sales and news that inflation had begun to recede
He added that: "Yesterday a CBI survey showed UK factories increasing output at the fastest rate since the mid-1990s, suggesting manufacturing - which makes up around ten percent of the economy - might make a meaningful contribution to overall economic growth in the third and fourth quarters."
Nancy Curtin, chief investment officer at Close Brothers Asset Management said in a note that it’s difficult to see an interest rate rise on the immediate horizon.
She added: "However, at the same time, consumer credit levels are clearly causing a headache for (Bank of England governor) Mark Carney. We may see some macro prudential action to tackle this, although this in turn may inhibit consumer spending, which has been so instrumental in recent economic growth."