UK sees beginning of recovery in construction

The recession in the UK was not as deep as previously feared between April and June, official figures confirmed today.

UK output shrank by 0.6% during the quarter - the second upward revision to official figures since July - the Office for National Statistics (ONS) said.

A better-than-expected performance from the construction industry was behind the latest revision, but the economy has shrunk 5.5% since the second quarter of 2008.

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.

Saving rates have been steadily increasing since the onset of recession - after briefing turning negative for the first time at the beginning of 2008 - as households build up a buffer against the threat of unemployment.

But 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".

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