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Recession 'not as bad' as expected

The effects of the recession were not as deep as previously feared between April and June, official figures have confirmed.

UK output shrank by 0.6% during the quarter, the Office for National Statistics (ONS) said. This is the second upward revision that the ONS has made since July.

A better-than-expected performance from the construction industry was behind the latest revision.

Despite the upward revision to the second-quarter figures, they nonetheless showed output declining at a time when other major economies such as France and Germany were pulling out of recession.

The ONS also revised down its estimates for the first three months of this year to show a deeper 2.5% decline at the worst point of the slump - confirming it as the worst since 1958.

Official growth estimates for 2008 as a whole were meanwhile lowered from 0.7% to 0.6%.

There was also evidence of families rebuilding their finances in the recession with the household savings ratio hitting 5.6% - the highest for more than five years. The measure still has some way to go to reach the double-digit saving rates common in the 1990s following the last recession.

Capital Economics’ Vicky Redwood said: “At least the consumer sector appears to be on a firmer footing … But (the saving rate) is still well below its long-run average and we think the consumer adjustment has further to go.”

She added the figures highlighted the “fragility” of the recovery, with overall improvement in output during the second quarter of this year “marginal compared to the huge amount of spare capacity building up”.

This was posted in Bdaily's Members' News section by Ruth Mitchell .