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

The Office for National Statistics said GDP - a broad measure of the economy - fell 0.4% between April and June in the second upward revision.

Its initial estimate of a 0.7% contraction had shocked the City in July.

But smaller than previously thought falls in the production, manufacturing and construction sectors improved the fall 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.

Today's news had been expected by economists after the ONS recently revised output from the construction sector up from a fall of 3.9% to 3%.

The ONS has also revised up output from the production industry from a drop of 0.9% to 0.7% and manufacturing output from a fall of 0.9% to 0.8%. The drop in household spending is also not as bad as first thought, down by 0.2% against previous estimates of a 0.4% decline.

UK economists said that the economy should rebound in the third quarter as the bank holiday effect unwinds and any Olympics boost comes through. But they added that they still expect the underlying performance of the economy to remain weak and GDP may even contract again in the fourth quarter.

They said that any GDP growth would likely "remain very modest" amid ongoing troubles in the euro zone and uncertainty over the wider global economy.

Despite the upward revision, the UK economy remains mired in the longest double-dip recession since the 1950s, with GDP having fallen for three quarters in a row.

ONS data also confirmed the pressure on the economy, with the current account deficit widening to a record high of 5.4% of GDP, at £20.8 billion sterling in the second quarter, almost double the original estimate of £11.2 billion.