LONDON (Reuters) - The economy shrank for a sixth consecutive quarter in the three months to September but at a slower pace than previously reported, keeping alive expectations of a return to growth before the end of the year.
The Office for National Statistics said GDP fell by 0.3 percent in the third quarter, less than the 0.4 percent fall reported last month.
Analysts had been shocked by the weakness of the initial reading after survey indicators suggested the economy was on the road to recovery.
Some in the market had expected an even bigger upward revision and the pound slipped almost half a cent against the dollar and gilt futures rose to a six-week high on the figures.
Prime Minister Gordon Brown’s government, trailing in opinion polls, is hoping for a recovery well before an election expected next May.
“The composition of third-quarter bodes well for a positive GDP reading in the fourth quarter,” said James Knightley at ING.
“The inventory run-down looks to have ended, with this component likely to make a positive contribution in Q4 while rising retail sales and consumer confidence point to an improvement in consumption.”
Household spending stabilised after five quarters of contraction and there was a further sharp run down in inventories.
The past four quarters have seen the sharpest run-down in stocks since records began, raising hopes firms will have to crank up production swiftly once demand picks up.
Bank of England Monetary Policy Committee member Andrew Sentance said there were many reasons to believe a recovery was now taking hold.
“You have to look at the broader picture,” he told BBC radio.
Britain is suffering its longest unbroken stretch of GDP declines since records began in 1955 while many of its trading partners — including France, Germany, and the United States — have emerged from recession.
But the recent brightening in the economic outlook means victory for Britain’s opposition Conservative Party in next year’s election is not the foregone conclusion some had forecast.
A poll in Sunday’s Observer showed the Labour Party had slashed the Conservative’s lead to six points, a result that if replicated on polling day would result in a “hung parliament” where no party has an absolute majority.
GDP was 5.1 percent lower in the third quarter than a year ago, a smaller drop than the 5.2 percent drop initially estimated and the record 5.5 percent drop recorded for the second quarter.
Analysts said the Q3 figures could be revised further since they were still based on just 70 percent of the data that statisticians will have to hand when they make a final reading on December 22.
“We hope these numbers are something clearer to the truth,” said David Page, economist at Investec. “But we would still harbour some scepticism that this figure is set in stone forever.”
Bank Governor Mervyn King said this week that even with a sharp recovery, it would take a long time for output to return to levels it would have reached were it not for the financial crisis.
Editing by Philippa Fletcher