Britain's economy shrank by a smaller-than-expected 0.7 percent in the second quarter of this year after official statisticians upgraded their estimates of industrial output, keeping alive hopes of a near-term recovery.
The Office for National Statistics said on Friday that the revisions reduced the annual drop in economic output to 5.5 percent from 5.6 percent — though this is still the sharpest year-on-year fall since records began in 1955.
Britain's economy is performing much worse than other big countries such as France, Germany and Japan, which all emerged from recession in the April-June period, but most analysts reckon the UK will return to growth by the end of this year.
Economists had not expected a revision to the second-quarter GDP data, instead predicting that the ONS would stick with its 0.8 percent initial estimate for second-quarter contraction.
Still, the new figures do little to alter the view that monetary policy would need to remain loose for a long time yet, not least because the government will have to cut spending in the coming months, removing a key support to growth.
Moreover, the large degree of spare capacity should keep inflation under control and remove the urgency for policymakers to unwind stimulus measures.
"The economy is still likely to have more or less pulled out of recession in Q3, but we continue to expect pretty meagre rates of economic growth over the next couple of years at least," said Vicky Redwood of Capital Economics.
SIGNS OF HOPE
Some analysts had feared the GDP figures would be revised downwards after news this week of a sharp drop in business investment. But Friday's data actually showed the fall in gross fixed capital formation eased to 4.5 percent in Q2 from 7.5 percent in the first quarter.
The data also showed that companies ran down stocks at a slower pace in the second quarter than in the first, paving the way for an eventual pick-up in production.
Inventories fell by 4.581 billion pounds ($7.46 billion) compared with a drop of 5.426 billion in the first three months of this year.
"The figures do confirm that the destocking cycle is at an end. On the assumption that investment doesn't collapse again, I'm moderately optimistic we'll see positive growth in Q3," said Peter Dixon, economist at Commerzbank.
Indeed, the pace of decline in overall production output, which includes manufacturing and energy, also slowed to show a quarterly fall of 0.6 percent in Q2 after a 5.1 percent drop in the first three months of this year.
The ONS said chemicals and engineering in particular had helped limit the fall in manufacturing output, and there was anecdotal evidence the government's car scrappage scheme had proven a boon to the motor vehicles services sector.
Government spending rose 0.8 percent on the quarter, compared with a 0.2 percent increase in the first three months of this year and household spending fell 0.7 percent after a 1.3 percent decline in Q1.
Analysts warned that state spending was unlikely to be able to prop growth for much longer due to the dire state of the public finances, while rising unemployment posed a threat to householding spending going forward.
Nonetheless, there were still reasons to hope for an upturn.
"The retrenchment in household spending has further to go, and the saving rate has further to rise," said Colin Ellis, economist at Daiwa Securities.
