UK recession less deep than thought

The UK economy shrank by less than previously thought between April and June, official figures have shown.

Revised data from the Office for National Statistics (ONS) show the economy contracted by 0.5% during the quarter, less than the 0.7% it announced last month.

The ONS said output in the construction sector was higher than it had previously estimated.

Many economists had expected the figures to show a smaller contraction.

The original estimate of a 0.7% contraction, published in July, was greeted with some scepticism by a number of experts and by some industries that claimed they had seen little sign of such a serious economic downturn.

"The production sector was not quite as bad [as we thought]; similarly the construction sector," Joe Grice from the ONS told the BBC.

He said each accounted for a 0.1% revision to the original 0.7% estimate.

The ONS had already said that output from the construction sector fell by 3.9% between April and June compared with the previous quarter, compared with an earlier forecast of a 5.2% drop.

GDP figures show the value of all the goods and services produced in the economy. The ONS always refines its GDP calculations as more data becomes available and changes to the original estimates happen on a regular basis.

Output 'stagnating'

Mr Grice said the revision did not change the overall picture of the UK economy, which has been "broadly flat over the past two years".

Economists agreed with this assessment.

"The revision is very small in the big picture and means that output is still more than 4% below its pre-recession peak," said Vicky Redwood at Capital Economics.

"Remember that the extra bank holiday probably knocked about 0.5% off GDP. But even so, underlying output is just stagnating."

A number of analysts believe GDP will rebound in the current quarter, partly due to the impact of the Olympic games. A rise in consumer and government spending, as well as the boost from ticket sales that will be recorded in the July to September quarter, should lift growth, they say.

'Difficult process'

The UK economy is in recession having contracted for the past three quarters.

Some observers have blamed the government's severe spending cuts for undermining growth.

Labour's shadow Treasury minister Chris Leslie told the BBC that action, not talking, was needed to stimulate growth. He said the government should introduce a temporary cut in VAT to help consumers and a levy on bankers' bonuses to help fund jobs programmes for the young.

A Treasury spokesperson said: "Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process.

"Compared to two years ago the deficit is down, inflation is down, and there are more private sector jobs."

Some have questioned why the economy is shrinking when unemployment is falling.

Mr Grice said one reason for this anomaly was the move to part-time work, which had also affected the "productive capacity" of the economy. He said this was a very similar situation to many other economies outside the UK.