UK economy shrank less than thought

Construction worker Construction remained the main drag on the economy

The UK economy contracted by less than thought in the second quarter, official figures have shown.

The economy shrank by 0.4% in the April-to-June period, the Office for National Statistics (ONS) said in its third estimate of gross domestic product (GDP).

The ONS had initially estimated a contraction of 0.7%, before revising that to 0.5% last month.

Analysts had been expecting no change to the second estimate.

The first figures for any quarter are known as the "flash estimate" as they are based on incomplete data. The figures are revised at least twice as more information is collected

A 3% slump in construction output in the second quarter of 2012 remained the main drag on the economy, although this was better than the first estimate of a 5.2% fall and the second estimate of a 3.9% decline in the sector.

Production output, which includes manufacturing fell by 0.8%, revised from a 0.9% fall.

The manufacturers' organisation, the EEF, said the figures offered "some hope" for manufacturing, pointing out that manufacturing investment increased by 5.9% in the second quarter.


The latest economic output figures will confirm the suspicion of some experts that the preliminary estimate was out of line with other indicators. How, they asked, could the economy be contracting by 0.7% when it was creating about 200,000 jobs over the same period?

The latest figure of 0.4% can itself be adjusted for the effect of the extra June bank holiday (believed by the Bank of England to be about 0.5%). Once that is accounted for it's possible to argue that the economy grew slightly.

The reality is that the economy seems to be bumping along rather than declining rapidly. But, even if the current third quarter registers an Olympic-fuelled bounceback, it is hard at this stage to discern signs of sustained recovery.

But the British Chambers of Commerce said that, although this was a welcome revision, the new figures were "still too gloomy".

There was a 0.1% fall in services, which was unchanged from the previous estimate.

Rebound expected

The UK economy has contracted for three quarters in a row.

But Credit Suisse economist Neville Hill said that recent data and surveys pointed to a return to growth in the third quarter.

"It's still not as bad as it actually looks," he told the BBC. "You've got to take these numbers with a pinch of salt."

The effects of the Diamond Jubilee bank holiday and the wet weather in June would have "understated" how the economy actually performed in the second quarter, he said.

The third quarter, on the other hand, would see a rebound from those factors and receive an additional boost from the London Olympics, probably "overstating" the economy's performance.

Recent labour market data has provided more upbeat news for the UK, with unemployment falling by 7,000 to 2.59 million in the three months to July, compared with the previous three-month period.

"It's almost impossible to see an economy in recession yet creating the amount of jobs in the private sector that we've seen over the last 12 months," Mr Hill said.

"We probably are statistically pulling out of a recession that we never really had."

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