Economy improves slightly but recession continues

The UK recession was shallower than previously thought between July and September, but the economy continued to decline, revised official figures showed today.

New estimates from the Office for national Statistics (ONS) showed a 0.3 per cent fall in UK output in the third quarter, compared with the shock 0.4 per cent slide originally indicated.

But the UK remained in recession in the period - its sixth successive quarter of contraction.

Today's revision was in line with expert predictions after the original quarter-on-quarter estimate stunned economists.

They had expected the UK to pull out of its slump following survey evidence suggesting a return to growth for services and manufacturing.

The ONS said the upward revision of UK output was driven by an improvement in the economically critical services sector.

More data was available for this latest estimate, while upgrades were noted in the motor vehicle industry as the Government's car scrappage scheme continued to have an effect.

Service output was revised upwards from a fall of 0.2 per cent, to a 0.1 per cent drop.

Manufacturing also showed an improvement in this estimate for the quarter, revised to a decline of 0.1 per cent from a 0.2 per cent slump.

But overall production slumped further than previously thought, driven by lower oil and gas extraction.

The ONS said household expenditure was broadly unchanged from the level of the previous quarter.

Experts forecast that the UK will begin its recovery from recession in the final quarter of this year, but the country has lagged behind other developed economies in its climb towards growth.

France, Germany, Japan and the US have all already enjoyed an upturn in output, putting pressure on the UK Government.

But figures yesterday revealed that the US economic recovery was slower than expected in the third quarter. The country saw growth of at an annual rate 2.8 per cent in the period, compared with the initial estimate of 3.5 per cent.

Colin Ellis, of Daiwa Securities, said the figures were "mildly encouraging" but still pointed to "serious doubts" about the strength of any recovery.

He said: "Car spending is unlikely to rise as sharply in future quarters - so, even though the level of spending may hold up while the scrappage scheme continues, there may be little extra impetus to growth.

"At some point, of course, there will be a payback - scrappage schemes do not generate new spending, but merely persuade consumers to bring forward purchases they would have eventually made anyway."