Double-dip slump not as bad as feared

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The UK’s double-dip recession is not as deep as previously feared after revised figures showed a smaller contraction in the second quarter of the year.

The Office for National Statistics (ONS) said gross domestic product (GDP) – a broad measure of the economy – fell 0.4 per cent between April and June in the second upward revision.

Its initial estimate of a 0.7 per cent contraction shocked the City in July, but smaller than previously thought falls in the production, manufacturing and construction sectors improved the decline to 0.5 per cent last month and now 0.4 per cent.

Hopes are now mounting of a return to growth in the third quarter after Bank of England Governor Mervyn King said last week there were “signs of a slow recovery”.

Retail figures from the CBI yesterday also offered some welcome cheer after revealing a modest sales increase on the high street this month.

Today’s news had been expected by economists after the ONS recently revised output from the construction sector up from a fall of 3.9 per cent to three per cent.

The ONS has also revised up output from the production industry from a drop of 0.9 per cent to 0.7 per cent and manufacturing output from a fall of 0.9 per cent to 0.8 per cent.

The drop in household spending is also not as bad as first thought, down by 0.2 per cent against previous estimates of a 0.4 per cent decline.

Vicky Redwood, chief UK economist at Capital Economics, said: “The economy should rebound in the third quarter as the bank holiday effect unwinds and any Olympics boost comes through.

“But we still expect the underlying performance of the economy to remain weak.”