UK Q2 GDP growth initial estimate pushes sterling down

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Expansion in the second quarter followed 0.2 percent growth in the first three months of 2017 but statistics showed the United Kingdom has had the slowest growth rate in the first half of a year since 2012.

Gross domestic product had stood at 0.2 percent growth between January and March, the ONS confirmed, while the second-quarter reading matched analysts' consensus forecast.

Earlier this week, the downgraded its United Kingdom outlook for 2017 citing weaker-than-expected activity in the first quarter.

Despite lacklustre growth so far this year, Ben Brettell, senior economist at Hargreaves Lansdown, said there are tentative signs that the economy might improve in the second half. The second quarter growth was below the 0.4 percent expansion anticipated by the Bank of England (BoE) and raises downside risks to 2017 GDP outlook.

Britain's economy failed to build much momentum over the past three months after nearly stalling at the start of the year, reducing an already slim chance that the Bank of England will soon reverse last year's emergency interest rate cut. This left services output growth at 0.5%, softer than the 0.6% we forecast and hence saw GDP undershoot our expectation.

Paul Hollingsworth, UK economist at Capital Economics, said: "The first estimate of Q2 GDP revealed that the economy re-gained a little bit of momentum in the second quarter, but growth is still too weak to prompt the MPC to hike interest rates". Cable was trading at 1.3055 at the time of writing, up 0.24 percent on the day.

Growth in the second quarter was led by services, which rose 0.5% and were the sole positive contributor. It kept its estimate for 2018 unchanged at 1.5 per cent.

The fact that growth remained sluggish in the second quarter is another reason to think that policymakers will take a cautious approach at its meeting next week, Capital Economics economist Paul Hollingsworth said.

Publishing the figures on Wednesday, the Office for National Statistics said the economy experienced a "notable slowdown in the first half of this year".

Philip Hammond, the chancellor of the exchequer, said: "Our economy has grown continuously for four-and-a-half years, delivering record levels of employment".

GDP per head increased by 0.1 percent during quarter 2 and has seen an increase of one percent compared to Q2 2016.

Pound dented following the publication of UK's GDP figures.

"Inflation is likely to resume its upward trajectory in the coming months and this could trigger a sharper economic slowdown by increasing the squeeze on consumer spending - a major driver of United Kingdom economic growth".

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