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UK growth slowdown takes rate-hike pressure off BoE

Britain's economy grew less strongly than previously thought in much of 2015, according to official data that may give the Bank of England pause for thought as it ponders when to raise interest rates.

Britain's economy expanded by 0.4 percent in the third quarter, down from a previous estimate of 0.5 percent and below the forecasts of 35 economists polled by Reuters, who had all expected no change in the figure. Growth in the second quarter was revised down more sharply.

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Weaker growth in the huge services sector, especially in financial services, was behind the new, lower assessment of growth for the July-September period, the Office for National Statistics said on Wednesday.

The BoE has previously said it expects growth in the third quarter will eventually come in at 0.6 percent.

"There will be even less near-term pressure to raise interest rates," Philip Shaw, an economist with Investec, said.

Most economists have previously said they expect no move by the BoE until around May of next year. Financial markets expect no rate hike until late 2016 or early 2017.

In annual terms, overall economic growth in the third quarter was revised down to 2.1 percent from a previous reading of 2.3 percent.

Economists taking part in a Reuters poll had expected no change to the previous ONS estimates. Sterling briefly fell after the data and government bond prices edged up.

Britain has grown more quickly than most other developed economies over the past two years, helping Prime Minister David Cameron and finance minister George Osborne to lead their Conservative Party to an election victory in May.

Risks Ahead

A spokesman for the finance ministry said Wednesday's data showed Britain was still ahead of most of its peers in terms of growth but also highlighted the risks still facing the economy.

"That's why we should continue working through our plan to build an economy that delivers security for working people," the spokesman said, referring to Osborne's programme of further spending cuts to fix Britain's weak public finances.

Britain's recovery since 2013 has been driven in large part by spending by consumers. Wednesday's data showed household spending rose more quickly than previously thought in the third quarter, helped by the biggest annual increase in disposable income since 2010 as inflation tumbled to zero and wages rose.

Still, the savings ratio fell to its joint lowest level since 1963.

The ONS lowered its estimate of growth in the April-June period to 0.5 percent from 0.7 percent in quarterly terms and to 2.3 percent from 2.4 percent in annual terms, citing changes to its assessment of inventories.

Other data released on Wednesday also suggested BoE Governor Mark Carney and his fellow policymakers will not be worried about inflation pressures.

The ONS said growth in unit labour costs slowed to an annual 2.0 percent from 2.2 percent in the second quarter and a measure of productivity was unchanged.

Carney has said he wants to see unit-labour costs picking up, among other factors, before thinking about raising rates.

Also suggesting little pressure on the Bank to move, a measures of services growth slowed sharply in October, at the start of the fourth quarter.

Britain's current account deficit, considered one of the weak points of the country's economic recovery, remained almost stable in the July-September period at 3.7 percent of gross domestic product, down from 3.8 percent in the second quarter.

At 17.5 billion pounds, the deficit was lower than a forecast 21.5 billion pounds in the Reuters poll.