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Britain's GDP seen strong—But unsustainable

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U.K. economic growth is expected to have doubled in the second quarter of the year from the first, driven by a booming services sector, according to analysts - but some warned against cracking open the champagne just yet.

Analysts surveyed by CNBC forecast gross domestic product (GDP) growth of at least 0.6 percent in the second quarter. The official data, to be released on Thursday, follows expansion of 0.3 percent in the first three months of the year.

RBS U.K. economist Ross Walker said the services sector was driving growth in Britain. The purchasing managers' index data (PMI) for the sector showed activity at a 27-month high in June.

(Read more: Don't panic! UK recovery is 'firmly entrenched')

"The services PMI strengthened during the second quarter to above-trend levels," Walker said. "Previous pockets of weakness, such as retail sales, have either been revised away or subsequent data have strengthened."

Emily Nicol, an economist with Daiwa Capital Markets, also forecast growth of 0.6 percent, and said the dominance of the services sector was unexpected.

"The services sector is driving the growth, which has been slightly surprising really," she told CNBC, highlighting there have been no big services-led events – for example, the Olympics – to boost the sector.

Thursday's GDP figure follows a slew of positive data releases and business surveys for the U.K. which has led a number of organizations to upgrade their growth forecasts for the country. Last week, analysts said strong retail sales and employment data boded well for U.K. GDP. The Confederation of British Industry on Wednesday reported that manufacturers had seen a pick-up in activity in the second quarter, with new orders and production continuing to rise.

Howard Archer, economist at IHS Global Insight, said the construction and industrial sectors would make modest positive contributions to GDP in the second quarter.

"It looks highly likely that construction output made a recently all-too rare positive contribution to GDP growth in the second quarter," he said. "Industrial production also looks likely to have contributed to GDP growth in the second quarter, albeit modestly."

Britain's construction sector grew for a second month in June, while manufacturing recorded its strongest growth in more than two years in June, according to PMI data.

IHS forecast GDP growth of 0.6 percent, but added: "We consider there to be a very real chance that growth could have come in even higher than 0.6 percent quarter-on-quarter. "

Fathom Consulting went further, expecting GDP growth of 0.8 percent, in part fueled by the government's Help to Buy scheme. Chancellor George Osborne hopes the program, which guarantees up to 15 percent of a mortgage, will boost the housing market.

(Read more: UK housing recovery spurs 'bubble' warnings)

Philip Lachowycz, an economist at Fathom, said: "This would mark the strongest quarterly rate for three years – better even than the Olympics-inspired third quarter of last year."

But he told CNBC that although the U.K. economy would continue to perform well through the second half of this year, and into 2014, the growth is unsustainable.

"With real wages still falling, it reflects an already over-extended household sector getting further into debt. Meanwhile, the U.K. still has severe structural problems caused by the banking crisis," he added.

Daiwa's Nicol also said growth was "probably not" sustainable at this rate. "We'll see a slow down through the second half of the year, but we expected positive growth to continue over the near term."

(Read more: UK Economy Picked Up Steam in the Second Quarter)

Walker stressed that although, "of course," 0.6 percent growth would be welcome, it would not be exceptional.

He highlighted that even at this rate of expansion, in level terms real GDP would still be 3.3 percent below its pre-financial crisis peak, with the economy on track to post full-year growth of just 1 percent.

"A cursory glance at these underlying data trends should temper some of the more excitable commentary about the near-term outlook for the wider economy," he said.

-- By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop

Contact Europe: Economy

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