Page last updated at 17:02 GMT, Tuesday, 22 December 2009

UK economy remains in recession

UK high street
There are some indications that consumer spending is picking up

The UK economy shrank by 0.2% between July and September, figures show, an upward revision to the previous estimate of a 0.3% contraction.

It means that officially the recession has not yet ended. Analysts believe that fourth quarter figures will show the economy returning to growth.

The news disappointed those who had expected a contraction of 0.1%.

The British Chambers of Commerce (BCC) said the latest figures raised concerns about the strength of the recovery.

BCC chief economist David Kern said: "While most analysts expect a return to positive growth in the next few months it is important to stress that recovery is not yet guaranteed."

The UK recession began in the April-to-June quarter of 2008. Since then the economy has contracted by 6%.

This is the second revision to the third quarter's GDP figure. The initial estimate, released in October, showed the economy shrank by 0.4%.

It is customary for the first estimate of GDP to be revised twice at monthly intervals. It can sometimes also be revised up to 18 months after the initial estimate.

Recovery concern

Stephanie Flanders, BBC economics editor

Anyone convinced that the recession ended between July and September will have to wait a bit longer for vindication. If they get it at all

Stephanie Flanders, BBC economics editor

The fact the economy had shrunk during the third quarter of 2009 took many analysts by surprise when the initial figures were released in October.

Many had expected the UK economy to return to growth during that period, and are still scratching their heads that subsequent revisions show the economy still to be in recession.

"We still find it hard to believe fully that the economy was contracting in the third quarter," said Investec's Philip Shaw.

Others believe that they may yet be proven right.

"We are expecting this number to be revised upwards and this will eventually be seen as a growth quarter," said Amit Kara from UBS. "The big picture is that the economy is recovering... we see growth at 1.8% next year."

The Office for National Statistics said the upward revision to the third-quarter figures was down to an improvement in construction output. That was boosted by strong growth in public sector projects, while the decline in house building slowed.

However, services and industrial production were weaker.

Balancing act

BBC economics editor Stephanie Flanders said: "There is at least one piece of encouraging news in today's release: the household savings ratio in the third quarter rose to 8.7% of income, compared to 7.6% in the previous three months."

She said it was important for savings in the economy to go up to put the recovery on a more sustainable footing.

The household savings ratio is the percentage of disposable income that is saved.

Analysts say the high level of household debt in the UK must come down in order to make the economy more balanced. However, while overspending was one of the factors contributing to the credit crunch, it is important for the recovery that consumers do not cut back their spending too sharply.



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