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UPDATE 2-Sluggish UK economy inches forward, Bank of England unlikely to act

* UK economy grows 0.3 pct qq in Q2

* Lackluster growth likely to keep BoE on hold next week

* Sterling edges down after data

* Hammond says clarity on Brexit transition would aid growth

* Services the only sector to contribute to growth (Adds UK Finance lending data, film industry reaction, UK's Hammond)

LONDON, July 26 (Reuters) - Britain's economy failed to build much momentum over the past three months after almost 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.

Economic output grew by 0.3 percent on the quarter, edging up from a sluggish rate of 0.2 percent in the first quarter, as a booming film industry and bright spots elsewhere in the services sector were largely offset by contractions in manufacturing and construction.

The figure was in line with the median forecast in a Reuters poll of economists and capped the weakest first half to any year since 2012.

Finance minister Philip Hammond said the economy was "steady" and that more certainty about how Britain will leave the European Union in less than two years' time would help spur economic growth.

Sterling edged down against the U.S dollar after the data was released and British share prices rose.

"To me, this is the final nail in the coffin for an August rate hike," said Alan Clarke, head of European fixed income strategy at Scotiabank.

Underlining the consumer slowdown, separate figures from trade body UK Finance on Wednesday showed British banks approved the fewest mortgages for house purchase since September 2016 last month, though the total sum lent was the highest since March 2016.

Britain's economy grew 1.8 percent in 2016, among the fastest of the world's seven largest major advanced economies and defying widespread predictions of recession after the vote to leave the European Union.

But the Brexit vote in June 2016 did lead to a big fall in the value of sterling, which has pushed up inflation, gnawing at consumers' disposable income this year.

"The economy has experienced a notable slowdown in the first half of this year," ONS statistician Darren Morgan said.

SERVICES ONLY

The services industry was the only driver of economic growth in the second quarter, helped by retailers, hotels and restaurants, as well as Britain's fast-growing film industry.

The ONS said motion picture activities had grown by 72 percent since 2014, probably boosted by tax credits introduced by former finance minister George Osborne. The release of blockbuster films in the second quarter also helped.

Films entering production in Britain recently include 'M:I 6 - Mission Impossible' starring Tom Cruise, 'Peterloo' directed by Mike Leigh and 'Yardie' directed by Idris Elba, the British Film Institute told Reuters.

'Guardians of the Galaxy 2', 'Wonder Woman' and 'Fast and Furious 8' also generated large box office revenues over the quarter.

Growth between April and June in year-on-year terms fell to 1.7 percent from 2.0 percent in the first three months of the year, in line with economists' average forecast.

The figures are unlikely to alter the analysis of Bank of England officials gearing up to set interest rates next week. Only two out of 80 economists in a Reuters poll published last week thought the BoE would raise rates next Thursday.

In June the central bank said it expected final estimates of GDP to show growth of 0.4 percent in the second quarter.

On Monday the International Monetary Fund downgraded its 2017 economic outlook for Britain by more than any other rich nation, predicting growth of 1.7 percent compared with an earlier 2.0 percent estimate. It sees a further slowdown to 1.5 percent in 2018.

The preliminary estimates of GDP do not include a breakdown of spending, and are heavily based on estimated data.

(Editing by Catherine Evans)