UK economy shrinks less than feared Britain's economy shrank by less than initially calculated in the second quarter, partly due to improved data for the construction sector, official data on Thursday showed. The Office for National Statistics said that output in the three months to June fell by 0.4 per cent, compared with the 0.5 per cent and 0.7 per cent declines calculated in the earlier first revision and flash data estimates. Economists had expected the quarter to be particularly difficult to forecast because of the unusual holiday pattern that led to fewer working days than normal for the time of year. Aside from the widely expected revision to headline GDP, the overall economic picture painted by the latest numbers differs little from earlier estimates. Manufacturing now appears to have contracted by 0.8 per cent, down from the 0.9 per cent decline reported earlier, while construction contracted by 3.0 per cent, against the 3.9 per cent drop reported earlier. The data suggest that the squeeze on households may be easing somewhat; household consumption contracted by 0.2 per cent rather than the 0.4 per cent initially reported. Real household disposable income - the amount households have to spend, adjusted for inflation - rose by 1.9 per cent, largely because of increases in social benefits and other transfers. The household savings ratio - a number that includes debt repayments as well as actual savings - rose to 6.7 per cent from 6.0 per cent and is close to levels seen in the aftermath of the financial crisis. "The UK economy contracted less than previously thought in the second quarter, meaning the underlying trend was most likely one of very modest growth, after allowing for the lost working day due to the Jubilee," said Chris Williamson, chief economist at Markit. The second half of the year also looks likely to be substantially better than the first half, although the underlying rate of growth looks set to be modest at best due to the ongoing challenging environment facing households and businesses. There was also better than expected news from business. Investment rose by 0.9 per cent in the second quarter from levels in the first quarter. With households and government paring back expenditure to help pay down debt, economists had looked to business investment as a possible source of demand. Separately, new data show that Britain's current account deficit - which includes not only trade but also inflows and outflows from investment income - unexpectedly ballooned to £20.8bn, far more than City forecasters had expected. Ross Walker, economist at RBS, said it appeared that much of what had not been anticipated was the £2.3bn surge in foreigners" holdings of portfolio securities, generally UK debt and equities. "This £2.3bn figure looks dubiously large and will presumably be revised down," Mr Walker said, noting that there was also a £0.6bn decline in UK residents" income from foreign securities. Still, the magnitude of the investment income deficit is such that the UK current account position looks significantly worse - the balance of payments data require investment income surpluses to offset the sizeable, persistent deficits in trade in goods.