UK productivity returns to modest growth in Q1

LONDON, July 1 (Reuters) - British economic productivity returned to modest growth in the first three months of the year, official data showed on Wednesday, giving some encouragement to the Bank of England as it holds interest rates at a record low.

Output per hour rose 0.3 percent in the first quarter compared with the previous three months, after stagnating at the end of 2014, the Office for National Statistics said.

Compared with the first quarter of 2014, output per hour was 1.3 percent higher -- the fastest annual growth since early 2012.

British productivity has been weak since the start of the recovery as employment has outpaced rapid economic growth.

Output per hour is still around 1 percent lower than its level in early 2008, before Britain tipped into recession.

The ONS said non-manufacturing production and agriculture industries, and financial services, accounted entirely for this shortfall -- but this should not detract from "exceptionally weak" productivity in other parts of the economy, it added.

The Bank of England has forecast that productivity will recover gradually as the economic recovery builds, easing potential inflation pressures.

The ONS said unit labour costs -- a measure of how much employers must pay for a given amount of output, and a gauge of underlying inflation pressures -- fell by 0.6 percent on the quarter, but were 0.9 percent higher than a year ago. (Reporting by Andy Bruce; Editing by Toby Chopra)