By Wiktor Szary and Jason Douglas 

LONDON--U.K. economic growth remained subdued in the second quarter of the year, preliminary data showed, as weak performances from the manufacturing and construction industries offset an improvement in services--a worrying sign for Britain's economy just as the country enters complex exit negotiations with the European Union.

The U.K. economy expanded at a quarterly rate of 0.3% in the second quarter of 2017, the U.K.'s Office for National Statistics said Wednesday, a slight improvement on the 0.2% growth rate of the preceding quarter, but still less than half the pace of growth at the end of last year.

The second-quarter expansion was in line with the expectations of economists polled by The Wall Street Journal. The data cover the first three months of the two-year Brexit negotiation period. The U.K. served its exit notice to Brussels on March 29, and negotiations began in earnest last month.

On an annualized basis, growth accelerated to 1.2%, from 0.9% in the previous three-month period, the ONS said.

The expansion was driven largely by an improvement in services, which grew 0.5%. The services industry rebounded on stronger retail sales, a tentative sign that British consumers are returning to stores despite a squeeze on their wallets.

A sharp fall in the pound since last-year's Brexit vote propelled annual inflation to a near-four-year high in May. Price growth slowed unexpectedly in June, but remained well above the Bank of England's inflation target, and above the pace of growth in wages. Economists and policy makers expect inflation to accelerate a little further over coming months.

The second-quarter growth was also driven by a strong performance of the film industry, which has benefited from tax breaks introduced in 2014.

The April-June period saw a disappointing performance from the manufacturing industry, which was widely expected to benefit from sterling's sharp depreciation.

Write to Wiktor Szary at Wiktor.Szary@wsj.com and Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

July 26, 2017 04:58 ET (08:58 GMT)

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