UK economy picks up a little speed in May, driven by services

(Reuters) - Britain' economy picked up a bit of speed in May after a slowdown in early 2018, leaning on the services sector for growth as output in manufacturing disappointed, official data showed on Tuesday.

A new monthly reading of gross domestic product -- which will be watched closely by the Bank of England as it considers whether to raise interest rates next month -- showed the world's fifth-biggest economy grew by 0.3 percent in May from April.

That was up from growth of 0.2 percent in April and in line with the forecast in a Reuters poll of economists, marking the strongest growth since November, the Office for National Statistics said.

The ONS said the data provided a mixed picture of the economy, which was showing only modest growth.

"Services in particular grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding," ONS statistician Rob Kent-Smith said.

BoE Governor Mark Carney and other top officials at the central bank opted not to raise rates in May because of the early 2018 slowdown.

Instead they decided to wait for signs that the weakness only temporary and caused by unusually cold winter weather rather than a sign of broader problems ahead of Britain' exit from the European Union next year.

Britain' economy grew by 0.2 percent in the three months to May, as expected, after stagnating in the three months to April.

In annual terms, the economy was 1.5 percent bigger than in May last year, the ONS said.

The BoE' rate-setting committee is expected to raise rates by 25 basis points to 0.75 percent -- only its second rate hike in more than a decade -- on Aug 2, according to a Reuters poll of economists.

In a breakdown of the GDP numbers, the ONS said Britain's dominant services industry grew 0.3 percent month-on-month in May, slowing slightly from an upwardly revised 0.4 percent in April.

Over the three months to May, growth in the services sector -- which makes up 80 percent of the economic output -- picked up speed to 0.4 percent from 0.2 percent.

Industrial output and manufacturing data disappointed, however.

Industrial output fell unexpectedly in May by 0.4 percent on the month, hit by the shutdown of the Sullom Voe oil and gas terminal.

Manufacturing growth also disappointed, rising only 0.4 percent on the month -- less than half the expected growth rate in the Reuters poll.

May capped the weakest three months for British factories since December 2012.

There was better news from the construction industry, which had struggled in the bad weather of early 2018. Output jumped 2.9 percent in May, far exceeding expectations and marking the first growth in the sector since December.

Separate data showed Britain's deficit in goods trade during May was broadly unchanged from April at 12.362 billion pounds.

(Reporting by William Schomberg and Andy Bruce)