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By Andy Bruce and David Milliken
LONDON (Reuters) - Consumers continued to power Britain's economy last month as house prices surged and car sales boomed, although weak industrial output in June was a reminder that a balanced recovery still looks a way off.
House prices recorded their biggest annual rise last month since the start of the financial crisis, figures from mortgage lender Halifax showed on Wednesday, casting doubt on other signs that the housing market may be slowing.
But lower-than-expected industrial output in June will also be noted by Bank of England policymakers - who meet this week - as they look for signs that the recovery is broadening.
Sterling fell after the output data, which caused some investors to pare back bets on an early interest rate hike.
"If these trends continue, it could well be left to the services sector to do much of the heavy lifting in driving recovery momentum through the remainder of the year," said Philip Shaw, economist at Investec.
Shaw said business surveys showing strong growth in the services sector - which accounts for the bulk of Britain's private-sector economy - should ease any doubts about the recovery for now.
Britain's car industry on Wednesday bumped up its prediction for the number of cars sold this year to 2.45 million cars - some 8.1 percent more than in 2013.
Some signs have appeared that the economic recovery is spreading beyond housing and other consumer-oriented sectors. Among those was the biggest rise in business investment in two years during the first quarter.
The BoE has said it wants to be sure that growth is firmly established before it raises interest rates from their record-low 0.5 percent, something most economists think will happen late this year or early in 2015.
HOUSING RISK
BoE Governor Mark Carney has said the housing market is the biggest domestic risk to Britain's financial stability, and the latest Halifax survey contrasted with other signs of cooling in the market.
House prices in the three months to July were 10.2 percent higher than the same period a year ago, Halifax said. That was the largest annual increase since September 2007 - the same month that there was a run on British lender Northern Rock.
"The housing market is shaking off new mortgage rules," said Rob Wood, UK economist at Berenberg, referring to tougher credit checks on new borrowers introduced in April. "This is important, as the BoE has recently been pointing to the housing market as a good reason for broader economic growth to slow."
But data showing that industrial output grew just 0.3 percent in June may bolster BoE expectations that the economy's rapid growth will slow a little in the coming months.
Economists had expected a 0.6 percent rise in output, which would have offset a decline the same size in May.
The BoE will issue its latest quarterly economic outlook next Wednesday.
German industrial data also disappointed on Wednesday, as orders slid in June at the fast rate since September 2011.
With the onus still on consumers to provide the impetus for economic growth, data from the Society of Motor Manufacturers showed Britons were still willing to splash out on new cars.
New-car registrations in July increased by 6.6 percent from a year earlier to 172,907 units - slower growth than for the first half of the year as a whole, but stronger than June's 6.2 percent rise.
(Writing by Andy Bruce, additional reporting by Costas Pitas and William Schomberg; Editing by Larry King)