UK economy shrinks less than thought

The revised reading of UK output for the second quarter shows that the economy contracted a little less than originally thought.

According to statistics released by the government today, GDP shrank 0.7% in the second three-month period of the year – below the original estimate for a 0.8% contraction.

And GDP was 5.5% lower than the second quarter of 2008.

Economists had been predicting a modest upwards revision, but even the latest number is much worse than the 0.3% fall in output that economists had originally been forecasting.

Output fell in the production industries, in construction and in household expenditure, while government spending rose.

The UK economy, which has now been shrinking for five quarters, is still trailing its largest European peers France and Germany, as both pulled themselves out of recession in the quarter.

Yesterday, the US revised its GDP estimate saying that the world's largest economy contracted only 1% in the period. Spain, though, said it is falling deeper into recession.

Arifa Sheikh-Usmani, equity trader at Spreadex, said: ‘GDP was pretty much in line with expectations, which will provide some relief to the market after the poor business investment figures. FTSE was trading strongly ahead of the number and has so far not had much of a reaction.'

By 10.26 am, the FTSE 100 was up 49.91 points, or 1.02%, at 49191.19.