By Andy Bruce and David Milliken
LONDON (Reuters) - Britain's rapid economic recovery eased in the three months to September, as services output growth slowed and manufacturing expanded at the weakest pace in 18 months, official data showed on Friday.
Gross domestic product expanded by 0.7 percent in the third quarter, compared with 0.9 percent the quarter before, in line with forecasts in a Reuters poll and above its long-run average.
Output grew 3.0 percent from the third quarter of last year, the Office for National Statistics said, down from an annual rate of 3.2 percent in the second quarter. Total economic output is now 3.4 percent higher than its pre-crisis peak in early 2008.
Britain looks set to be the fastest-growing advanced economy this year, and few economists expected its previous quarterly growth rate - the fastest since the third quarter of last year - would be sustained.
But the slowdown will do nothing to alleviate concern that the euro zone's economic malaise may take a greater toll before next May's national election, where the government's economic legacy after years of austerity will take centre stage.
Chancellor George Osborne welcomed the data but said growth could slow further because of external factors.
"The UK is not immune to weakness in the euro area and instability in global markets, so we face a critical moment for our economy," he said.
His ruling Conservative Party hopes Britain's recent economic performance will convince voters to keep it in power. But the opposition Labour party says most Britons are not seeing the benefits of the recovery, because wage growth remains minimal.
Sterling edged up to a day's high against the dollar after the data, while British government bond prices were little changed.
Britain's services industry, which accounts for more than three-quarters of the economy, slowed the most during the quarter. Growth dropped to 0.7 percent from 1.1 percent.
Factory output growth declined to 0.4 percent on the quarter from 0.5 percent, its slowest rate since the first three months of 2013.
The immediate outlook for overseas demand is unpromising. Industry surveys show exporters have suffered from Europe's slump, and this - rather than Friday's GDP data - may have more bearing on when the Bank of England raises rates.
With few signs of inflationary pressure and growing risks from the euro zone, most Bank of England policymakers opposed raising interest rates from their record low 0.5 percent, according to minutes from their October meeting.
"If the mixed data continue to roll in, and if the euro zone shows no signs of renewed growth, this could push back rate hikes," said ING economist Rob Carnell.
The BoE said on Wednesday that its staff estimated Britain's economy grew by 0.9 percent in the third quarter. That is based on what it thinks the final estimate of GDP will be, which is sometimes higher than the ONS's preliminary estimate.
Economists polled by Reuters see quarter-on-quarter growth of 0.6 percent in the final three months of this year and in each quarter of next year.
(Editing by Larry King)