RTTNews - UK's economic contraction for the second quarter was not as severe as initially estimated. Still, annual decline was the biggest since records began in 1955.

The British economy shrank 0.7% sequentially in the second quarter. The decline was revised from last month's estimate of a 0.8% fall due to upward revisions to production, the latest report from the Office for National Statistics showed Friday. In the first three months of 2009, the economy had contracted 2.4% quarter-on-quarter.

The annual rate of decline in GDP was revised to 5.5% from 5.6% in the second quarter. But, the fall was larger than the 4.9% decrease seen in the first quarter and the biggest since 1955.

On the expenditure front, household expenditure slipped 0.7% sequentially in the second quarter, while government spending grew 0.8%. Gross fixed capital formation was down 4.5%. Further, exports of goods and services decreased 2.7% and imports dropped 3.2%.

The level of inventories, including the alignment adjustment, fell GBP 4.6 billion in the second quarter, with significant declines in motor vehicle and construction inventories.

The ONS reported that the upward revision to GDP was due to higher estimates for manufacturing, energy extraction and supply, and for wholesaling and motor vehicle services components of the output of service industries.

Output of production industries dropped 0.6% in the second quarter with output of manufacturing industries falling by 0.2%. Construction output slipped 2.2% over the first quarter and mining and quarrying output dropped 0.7%. While, services industries output was down 0.6%.

The implied GDP deflator rose 1.3% in the second quarter from the same period of the previous year.

After the release of quarterly Inflation Report on August 12, Bank of England Governor Mervyn King said the recovery could be slow and protracted. King said the strength of the recovery will be affected by necessary balance sheet adjustments of the banking, household and public sectors.

Commenting on the data, British Chambers of Commerce's Chief Economist, David Kern said the revision in GDP came as a slight relief after the release of poor business investment figures.

Kern added, The new figures are consistent with the expectation that GDP will increase slightly in the second half of the year. The government needs to manage the task of repairing public finances without damaging wealth-creating businesses.

Business investment dropped 10.4% in the second quarter compared to the previous quarter, which was the biggest drop in more than two decades.

The UK government had also implemented car scrappage scheme. The scheme offers GBP 2,000 incentive to motorists who scrap their cars over ten years old to buy a new one. This scheme has reached halfway mark.

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