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Britain depends increasingly on services sector to drive growth - BCC

LONDON (Reuters) - Britain was more heavily dependent on services companies to drive its economy during the second quarter as manufacturing growth ebbed, according to a business survey that said greater efforts are needed to boost investment and exports.

The British Chambers of Commerce's (BCC) quarterly economic survey - the largest of private-sector study of its kind in Britain - suggested the economy would continue to expand at a moderate pace over the next year.

But there was a widening gulf between steady gains by the service industries that form the bulk of Britain's private-sector economy, and slowing demand for manufactured goods, especially from abroad.

The factory exports balance fell to its lowest since the end of 2012, likely to be due in part to sterling's strength against the euro and dollar, BCC said, noting that the government should invest more in infrastructure and do more to promote exports.

"If we are to secure long-term, sustainable, diversified growth, the government must tackle these structural problems, which act as a brake on our economy," BCC director general, John Longworth, said.

Chancellor George Osborne on Wednesday presents the first budget by a fully Conservative administration since November 1996, and is expected to outline new measures to improve poor productivity growth.

British economic growth slowed in the first three months of this year to 0.4 percent quarter-on-quarter, although most economists and the Bank of England expect the pace of expansion to quicken in the second half of this year.

The BCC said keeping interest rates low was necessary but not sufficient to guarantee growth.

BoE policymakers are watching developments in the labour market keenly as they judge when to raise interest rates from their record low levels.

The BCC survey showed employment growth slowed in manufacturing but picked up slightly in services businesses.

There was no sign that pay settlements were picking up at a faster pace, although official data last month showed British workers' pay grew at the fastest rate in nearly four years in the three months to April.

The Markit/CIPS monthly purchasing managers' indexes have also pointed to a divergence between solid growth in the services sector and a wilting upturn among manufacturers.

The BCC survey was conducted between May 25 and June 15 and was based on responses from 7,482 firms.

(Reporting by Andy Bruce; Editing by Louise Ireland)