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UK Q2 GDP fall smaller than first thought

BRITAIN'S economy shrank by a smaller than expected 0.7 percent in the second quarter, after statisticians revised up their initial estimates for manufacturing, energy, wholesale and car dealerships.

The Office for National Statistics said today that the revisions reduced the annual drop in economic output to 5.5 percent from 5.6 percent but that this was still the sharpest year-on-year fall since records began in 1955.

Analysts had expected an unchanged reading for a fall of 0.8 percent on the quarter and a drop of 5.6 percent on the year.

Despite the upward revisions, Britain's economy still performed much worse than other big countries. France, Germany and Japan all emerged from recession in the April-June period.

Still, the figures do suggest that Britain is on the path to recovery and many analysts reckon the country could return to growth before the end 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.

The ONS said chemicals and engineering had particularly helped to 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.

The figures showed that inventories fell at a slower rate in the second quarter, down 4.581 billion pounds compared with a drop of 5.426 billion in the first three months of this year.

"An easing in the rate of destocking helped to drive some of the improvement in GDP ... and government spending posted a robust quarterly rise," said Vicky Redwood of Capital Economics.

"But neither of these factors will boost growth for much longer. We continue to expect a pretty minimal rise in GDP next year."

Gross fixed capital formation dropped by 4.5 percent, following data this week which showed the biggest quarterly fall in business investment in 24 years.

The data also confirmed that construction output suffered its biggest annual fall since records began in 1948 and the fall in annual services sector output was the biggest since records began in 1955.


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