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British Gdp Growth At 3-Year High, But Investment Falls

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Britain's economy grew at its fastest pace in three years in the second quarter, probably helped by a one-off tax change, but business investment fell, raising some questions about the recovery's prospects.

Growth between April and June was 0.7 percent compared with the previous three-month period, in line with the previous reading, the Office for National Statistics said on Thursday.

Sterling fell and British government debt prices rose after the data that also showed a wider-than-expected current account deficit. Most economists had predicted quarterly economic growth would remain unchanged but some had said it might be revised up.

"We are starting to recover but we are not in the nirvana of broad-based growth yet," said Rob Wood, an economist with Berenberg Bank in London.

"It looks a little more fragile than in the last set of data, which showed a strong net trade contribution, whereas now the emphasis is back on fragile things like stock building and areas which won't persist like government investment," he said.

If we can keep on having one-off tax changes the recovery will be here forever!

I'm rejoicing already.

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Vicky Redwood, chief UK economist at Capital Economics, pointed out that much of the rise in these sectors was accounted for by stock building rather than sales.The reliance on stock building for growth was emphasised by a more modest rise in household spending of 0.3%, while export growth slipped to 3.0% from the previous estimate of 3.6%.

Redwood said: "The breakdown now looks a bit less favourable than before. In particular, stock building is now thought to have accounted for about a third of the rise in GDP, whereas the contributions from consumer spending, investment and net trade have all been revised down.

"And there are some other slightly disappointing revisions. The annual rate of GDP growth in the second quarter has been revised down from 1.5% to 1.3% and GDP growth in 2012 has been nudged down from 0.2% to 0.1%.

"There are clearly still reasons to be cautious about assuming that the recovery can maintain its recent impressive pace," she said.

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