24 Aug 2012

UK recession less bad than feared, but still grim

The UK economy shrank by less than previously thought between April and June, official figures show, helped by revised construction output figures.

Construction figures bad, but not as bad as previously estimated (Getty)

Revised data from the Office for National Statistics (ONS) show the economy contracted by 0.5 per cent during the quarter, less than the 0.7 per cent 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 per cent 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 said.

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

The fall reported by the Office for National Statistics was still the biggest drop since the first quarter of 2009 – when the economy was hit by the immediate aftermath of the financial crisis.

“The headline is a bit less frightening but the bottom line is pretty much the same: the UK economy has shrunk for three consecutive quarters,” said Vicky Redwood of Capital Economics.

“Given the drags from the fiscal squeeze, euro zone crisis and high domestic debt levels, we still doubt that a strong recovery lies ahead.”

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

The ONS always refines its GDP calculations as more data becomes available and changes to the original estimates happen on a regular basis.

GDP figures show the value of all the goods and services produced in the economy.

Figures released showed the UK’s trade deficit increased to £7.3 billion, up from £3.7 billion in the previous quarter as the eurozone debt crisis hit exports – its biggest fall since the third quarter of 2010, which wiped 1% off the GDP figure.

Business investment also fell for the first time for more than a year.