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Official data showed economic output expanded by 0.2% in August from July, matching the median forecast in a Reuters poll of economists. "The UK economy is holding up but remains in a precarious state," said David Bharier, head of research at the British Chambers of Commerce. The data showed Britain's huge services sector grew by a slightly stronger than expected 0.4% in August from July while manufacturing and construction shrank by 0.8% and 0.5%. Investors are putting a chance of less than one in four on the BoE resuming its rate hikes after its next scheduled meeting in November. Britain's economy stood 2.1% bigger than in February 2020, just before the coronavirus pandemic hit, the ONS said.

Persons: Matthew Childs, Sterling, Elizabeth's, BoE, David Bharier, William Schomberg, Andy Bruce, Kate Holton Organizations: REUTERS, Bank of England, Monetary Fund, Chambers of Commerce, European Union, ONS, Thomson Locations: London, Britain, Miral

A day after Britain's fast pace of price growth unexpectedly slowed, the BoE's Monetary Policy Committee voted by the narrowest margin of 5-4 to keep Bank Rate at 5.25%. But rate futures suggested they still saw a 50% chance of Bank Rate rising to 5.5% by the end of this year. Britain's economy, hit hard by Brexit, the COVID-19 pandemic and the surge in gas prices triggered by Russia's invasion of Ukraine, has been struggling with the highest inflation rate in the Group of Seven. But growth remains fragile, heightening the risk that the BoE's 14 back-to-back rate hikes will push the economy into a recession. Last week, the European Central Bank raised rates but suggested its move might be the last for now.

Persons: Andrew Bailey, Jon Cunliffe, Megan Greene, Jonathan Haskel, Catherine Mann, BoE, Reuters Graphics Sterling, Bailey, Rishi Sunak, Peter Nicholls, Frances Haque, Reuters Graphics Bailey, Yael Selfin, Hugh Gimber, William Schomberg, Catherine Evans Organizations: Bank of England, Reuters Graphics, U.S ., MPC, REUTERS, Santander UK, IF, U.S . Federal Reserve, European Central Bank, KPMG, Investors, Bank of, Morgan Asset Management, Thomson Locations: Ukraine, London, Britain

Investors put a nearly 50-50 chance on the BoE keeping rates on hold on Thursday after 14 back-to-back increases stretching back to December 2021. Investors had been overwhelmingly expecting the BoE to raise interest rates for the 15th time in a row on Thursday, taking Bank Rate to 5.5% from 5.25%. "The inflation figures may not sway the Bank of England away from raising interest rates tomorrow," Yael Selfin, chief economist at KPMG UK, said. Britain's inflation rate remains high - topped only by Austria and Iceland among Western European countries in August. But core inflation - which strips out volatile food and energy prices - fell by more than the headline rate to 6.2% from 6.9% in July.

Persons: Hunt, BoE, Yael Selfin, Price, Rishi Sunak, Jeremy Hunt, William James, Hugh Lawson Organizations: Reuters, Bank of England, Sterling, U.S, Investors, National Statistics, KPMG, Labour Party, Thomson Locations: July's, British, Austria, Iceland, Western, Britain

Annual pay growth including bonuses also accelerated, hitting 8.2%, the fastest outside the coronavirus pandemic period when government job subsidies distorted the data. Two-year British government bond yields, which are sensitive to speculation about BoE rate changes, hit their highest level in a month. Samuel Tombs, an economist with Pantheon Macroeconomics, said wage increases were set to slow in the second half of 2023. "The momentum in wage growth still is too strong for the Committee to take a break just yet," Tombs said. However, inactivity due to long-term sickness rose to a new record high, adding to the problems for employers seeking to fill job vacancies and adding to the pressure on pay growth.

Persons: BoE, Sterling, Samuel Tombs, Tombs, Andrew Bailey, Bailey, it's, Sharon Graham, Sachin Ravikumar, Sharon Singleton Organizations: Reuters, Sterling, Bank of England, Pantheon, Public, Unite, Union, Thomson Locations: Britain

Sterling weakened against the U.S. dollar and the euro as the Office for National Statistics said the consumer price inflation growth rate was its lowest since March 2022 but stayed above the pace of price growth in other big, rich economies. The BoE said in May it expected June inflation would fall to 7.9%. Economists polled by Reuters had expected the core measure of price growth to hold at 7.1%. Reuters GraphicsFood price and non-alcoholic drinks price inflation slowed to 17.3% - still a major strain on the finances of many households - from 18.3% in May. Services prices, also monitored closely by the BoE, rose by 7.2% in annual terms, slowing from 7.4% in the 12 months to May.

Persons: Sterling, BoE, Paul Dales, Rishi Sunak, Jeremy Hunt, Hunt, William Schomberg, Andy Bruce, Kate Holton, Catherine Evans Organizations: Reuters, Bank of, Bank of England, U.S ., National Statistics, Capital Economics, Investors, Reuters Graphics, Labour Party, Sunak's Conservative Party of, Manufacturers, Thomson Locations: Bank of England, Britain

The BoE said in May it expected June inflation would fall to 7.9%, moving further away from October's 41-year high of 11.1% but still way above its 2% target. Economists polled by Reuters had expected the core measure of price growth to hold at 7.1%. Despite June's drop, Britain's inflation rate remains the highest among the world's top seven rich economies. In Western Europe, only Iceland had a higher rate of inflation in June. Suren Thiru, Economics Director at ICAEW, an accountancy body, said July's inflation rate was likely to slow to below 7%.

Persons: Sterling, BoE, James Smith ,, BoE Governor Andrew Bailey, Rishi Sunak, Jeremy Hunt, Hunt, William Schomberg, William James, Sarah Young, Catherine Evans Organizations: Reuters, Bank of, Bank of England, U.S ., Reuters Graphics, National Statistics, Labour Party, Sunak's Conservative Party of, Reuters Graphics Reuters, Manufacturers, Thomson Locations: Bank of England, May's, Western Europe, Iceland, Britain

Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic. Ruth Gregory at Capital Economics said Friday's figures showed high inflation had taken a slightly smaller toll than previously thought. But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans. BUSINESS INVESTMENT FALLSThe data suggested businesses remained cautious. The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.

Economic output increased by 0.1% from the previous three months after shrinking by 0.1% in the third quarter, which was a smaller contraction than previously thought. The Office for National Statistics (ONS) had previously said the economy showed no growth in the fourth quarter. Britain's dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents. The ONS said changes to the way it calculates seasonal adjustments to the data were behind the big revision. The ONS said increased foreign earnings by UK companies, particularly in the energy sector, helped narrow the deficit.

The immediate outlook is less sombre: The economy is due to shrink by 0.2% in 2023, not 1.4% as previously thought. It also said Hunt's three-year business investment incentives would bring investment forward at a cost to later years. "We're on track to meet the - relatively loose, poorly designed - fiscal rule on paper only," he said. "It's even more important that the government builds on the measures presented today and produces a more comprehensive plan for boosting growth." ($1 = 0.8282 pounds)($1 = 0.8283 pounds)Writing by William Schomberg, Editing by Angus MacSwanOur Standards: The Thomson Reuters Trust Principles.

"The MPC (Monetary Policy Committee) is likely to respond relatively promptly to news about fiscal policy," Broadbent said in the speech delivered at Imperial College in London. Despite falling in recent days, the expectations financial markets for the BoE's Bank Rate to peak at about 5.25% was "by some distance the largest rise in market interest rates between MPC forecasts since the Committee was founded," Broadbent said. Investors further reined in their expectations of a full percentage-point interest rate increase by the BoE next month and British government bond future prices rose as Broadbent spoke. Rate futures put a 17% chance on a 100 basis-point increase on Nov. 3, down from 25% earlier on Thursday. A whole percentage-point rate hike was seen as a near certainty before Truss was forced to backtrack on her unfunded tax cut plans.

People exit Bank underground station in the City of London financial district during rush hour in London, Britain, October 3, 2022. Investors on Tuesday were pricing in a 66% chance the BoE will raise its benchmark Bank Rate by a full percentage point on Nov. 3, its next scheduled monetary policy announcement, down from a near-certainty before the sweeping fiscal U-turns. Register now for FREE unlimited access to Reuters.com RegisterInvestors have also pared back their bets on the peak for Bank Rate which they now see at 5.25%, up from a current 2.25% but down from almost 6% predicted earlier this month. But the outlook for the British economy has changed so markedly that the picture looks different for the BoE. "I expect the Bank of England will be responding only to the inflation picture," Punhani said.

"The ongoing squeeze on household finances continues to weigh on growth, and likely to have caused the UK economy to enter a technical recession from the third quarter of this year," Yael Selfin, chief economist at KPMG UK, said. Manufacturing fell by 1.6% from July and more maintenance than unusual in the North Sea hit the mining and quarrying sector which includes oil and gas. "Many other consumer-facing services struggled, with retail, hairdressers and hotels all faring relatively poorly," ONS Chief Economist Grant Fitzner said. GDP in September is likely to be weakened by a one-off public holiday to mark the funeral of Queen Elizabeth. The International Monetary Fund said on Tuesday it expected British GDP to grow in 2023 but only by 0.3%.

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