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UK economy shrank less than first thought

Despite a tough economic year to date the UK's economy shrank less than was first thought in the second quarter, suggesting that the early roots of recovery are starting to show.

The economy shrank by 0.4% in the April-to-June period, the Office for National Statistics (ONS) said in its third estimate of gross domestic product (GDP).

The revised figures showed a smaller contraction in the second quarter of the year and the UK’s double-dip recession is not as deep as previously feared.

It's initial estimate of a 0.7% contraction shocked the City in July, but smaller than previously thought falls in the production, manufacturing and construction sectors improved the decline to 0.5% last month and now 0.4%.

Hopes are now mounting of a return to growth in the third quarter after Bank of England Governor Mervyn King said last week there were “signs of a slow recovery”.

Retail figures from the CBI yesterday also offered some welcome cheer after revealing a modest sales increase on the high street this month.

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