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UK economy shrinks less than expected

LONDON — Britain’s economy shrank less than previously estimated during the second quarter of the year, according to revised official figures Friday, supporting hopes that it will exit recession and return to growth in the current quarter.

The Office for National Statistics said gross domestic product contracted by 0.7 percent between April and June, revising its earlier forecast of a 0.8 percent decline. Better performances in the manufacturing and production industries helped drive the change.

Rounding out the positive economic news, the Land Registry reported that house prices in England and Wales posted their biggest monthly rise in five years in July, a further indication that the housing market is recovering from its crash.

Many analysts expect economic growth to resume in the third quarter of the year, after bottoming out in a 2.4 percent contraction in the first three months of the year.

A return to growth in the third quarter would be the first quarterly rise since early 2008, marking the official end of the 2008/09 recession.

“With recent survey data showing the economy in a much healthier state, we expect third-quarter GDP data to show a marked improvement and a positive outturn could be on the cards,” said Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club economic consultancy.

But most economists still expect recovery to be slow, with both unemployment and taxes both forecast to rise and ongoing tight credit conditions predicted.

The second quarter GDP figures represented an annualized fall of 5.5 percent — still the sharpest decline since records began in 1955 — while the Land Registry said that house prices are still down 11.7 percent compared to last year.

The Bank of England has likewise suggested it may be too soon to celebrate by earlier this month extending its so-called quantitative easing program — to boost the money supply through asset purchases — to 175 billion pounds.

“It certainly won’t feel like the recession is behind us, especially in the labour market, and the return of that elusive feel good factor, when growth rates are high enough to make inroads into the unemployment total, will take some considerable time to come through,” said Royal London Asset Management economist Ian Kernohan.

Capital Economics economist Vicky Redwood said a recovery is “based on pretty fragile foundations.”

“The slight upward revision to U.K. GDP in the second quarter is pretty insignificant when set against the near-6 percent drop in output seen during this recession,” she said. “We continue to expect a pretty minimal rise in GDP next year.”