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British GDP grows 0.2% as industrial output shrinks

England

Britain's economy barely grew between April and June as industrial output shrank, casting doubt over the government's ability to erase the budget deficit as planned and raising pressure on the finance minister to boost growth.

The Bank of England is seen holding interest rates at their record low for at least several more months given the weakness of the economy and Tuesday's data may keep debates about the need for further monetary stimulus alive.

Britain's gross domestic product grew by 0.2 percent in the second quarter compared to the first, which took the annual growth rate to 0.7 percent, the lowest since the first quarter of 2010, the Office for National Statistics said on Tuesday.

Economists polled by Reuters expected quarterly growth of 0.2 percent after the economy flatlined over the six previous months, and some even predict an outright fall.

However, the ONS said special factors such as the additional holiday for the royal wedding, the after-effects of the tsunami in Japan and the record warm weather subtracted up to 0.5 percentage points of quarterly growth in the second quarter.

“GDP growth could have been as high as 0.7 percent if we discount the effects that we have seen in this quarter," the ONS said.

Overall industry output fell 1.4 percent on the quarter, dragged down by a 6.6 percent slump in mining, quarrying and oil and gas extraction output. Manufacturers recorded a 0.3 percent fall in output while construction grew 0.5 percent.

The service sector expanded by 0.5 percent, driven by growth in transport, storage and communication as well as business services.

The sluggish economy is adding another headache for the conservative-led government, already under pressure from public scrutiny of politicians' ties to Rupert Murdoch's media empire in the wake of a phone hacking scandal.

Britain's opposition Labour party as well as business lobby groups have called for emergency tax cuts to boost the economy.

The government has left little doubt about its commitment to the deficit reduction plans, but a prolonged weakness in growth may put its goal erase the deficit, which stood at around 10 percent last year, at risk.

Economists expect the government to keep up its austerity drive as the risk of failing on its own goals looms large.

The Bank of England has warned that Britain faces tough times ahead and discussions about a fresh round of asset purchases have intensified over the last couple of months among policy makers, who have kept interest rates at a record low of 0.5 percent for nearly 2-1/2 years now.

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