OTTAWA Canada's economy stalled in July as the manufacturing sector posted its biggest decline for more than two years, but it most likely grew by 0.1% in August, Statistics Canada said on Friday.

Analysts polled by Reuters had forecast a 0.1% month-over-month rise in July.

The economy is slowing in the wake of the Bank of Canada's decision to raise rates 10 times since early last year to tackle high inflation.

Overall, the service-producing sector edged up 0.1% in July while the goods-producing sector posted a 0.3% contraction.

The manufacturing sector shrank by 1.5% over June, the biggest month-on-month drop since April 2021, largely due to firms drawing down their inventories. A port strike in the Pacific province of British Columbia also impacted the chemical manufacturing subsector.

Some sectors hit by wildfires in June bounced back in July. Mining and quarrying, except for oil and gas, jumped by 4.2% while accommodation and food services posted a 2.3% gain.

The economy unexpectedly contracted in the second quarter at an annualized rate of 0.2%, far lower than the Bank of Canada's forecast of a 1.5% annualized rise. The bank is scheduled to issue new growth forecasts on Oct 25, the same date as the next rate announcement.

The bank held its key overnight interest rate at 5% on Sept 6, noting the economy had entered a period of weaker growth.

(Reporting by David Ljunggren, editing by Dale Smith)