UK economy shrinks by a less-than-expected 0.4pc The British economy has been in recession since the final quarter of 2011 as the eurozone debt crisis and the government's austerity measures weighed on output. The ONS revision was driven by a less severe contraction in construction and industrial production than previously thought. But there was also a marked improvement in household spending and business investment, two areas that have been at the heart of hopes for the recovery. Significantly, the report suggests that the squeeze on household finances is easing with real household disposable income rising 1.9pc, the largest quarterly rise since the second quarter of 2009. This leaves real after tax household incomes 1.7pc higher than the same point last year," Mr Knightley said. Mr Williamson added: "The big improvement was seen in business investment, which rose 0.9pc instead of declining 1.5pc, as had been previously estimated. While this is still only a modest improvement in the investment picture, it is an encouraging sign with regard to corporate health. The revisions also painted a picture of an economy less reliant on government spending than had been thought. Government final consumption expenditure decreased by 1.6pc, following an increase of 3.1pc in the first quarter. However, the country's trade position remained a major concern. The current account deficit hit a record £20.8bn in the quarter, up sharply from £15.4bn in the previous three months. It was caused by a record goods deficit, which hit £10.1bn. M&G's "bondvigilantes" said: "[It] should be danger signal for the pound." The economy is expected to rebound strongly in the third quarter, with growth of up to 0.7pc, but much of that will be due to the unwinding of the Jubilee bank holiday effect. However, the recovery is still expected to be slow. Howard Archer, UK economist at IHS Global Insight, said the UK "is now eking out very limited underlying growth helped by a reduced squeeze on consumers" purchasing power and a resilient jobs market."