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U.K. Economy Grew Briskly in Second Quarter

The British economy grew slightly faster than previously estimated in the first half of 2007, but the monetary policy outlook is more likely to depend on how the recent turmoil in financial markets plays out.

The Office for National Statistics confirmed GDP grew by 0.8% in the second quarter of the year, but it revised up its estimate for first-quarter growth to 0.8% from a previously reported 0.7%.

This meant the economy was now estimated to have grown by an annual 3.1% in the April-June period instead of last month's reading of 3.0%.

While that may exacerbate policymakers' concerns about the lack of spare capacity in the economy pushing up inflationary pressures, policymakers for now appear to be more focused on the downwside risks from troubles in financial markets over the last month.

"They're probably going to cut interest rates so I don't think this changes any of that," said Ross Walker, economist at RBS. "They'll justify it on expectations of slowing growth and inflation."

The ONS said the upward revisions to back data were the result of late survey returns primarily in the service sector.

The savings ratio, meanwhile, picked up to 3.1% from 2%.

"Some rebound in the saving ratio shows households are off their lows but still very stretched," said David Page, economist at Investec.

Separately, the ONS published figures on the balance of payments. This showed the current account deficit narrowed to 9.1 billion pounds in the second quarter from a downwardly revised 10.6 billion pounds in first quarter. The second quarter deficit was equivalent to 2.6% of GDP.