THE double-dip recession may not be as deep as originally feared after figures showed a less severe decline in construction sector output than previously estimated.

Construction output between April and June fell by 3.9% quarter- on-quarter, the Office for National Statistics (ONS) said, compared with a previous estimate expecting a 5.2% decline.

While the decline still shows a struggling construction sector, with new infrastructure projects weighing most heavily on the industry, analysts said the figures could lead to an upward revision in total economic growth for the period.

Gross domestic product (GDP) shrank by 0.7% in the second quarter, the first estimate from the ONS said, but this could be revised up to a decline of 0.5%.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The good news is that construction output fell less in the second quarter than had been estimated, which boosts the prospects of a significant upward revision to the second quarter GDP data.”

Meanwhile, official figures showed a slowdown in the rate of so-called factory-gate inflation, the prices charged by manufacturers, to 1.7% in July from 2% in June.

Within the figures, the ONS said the volume of all new work fell by 4.6% and repair and maintenance fell by 2.7% quarter on quarter.

The largest falls in new work were seen in public housing, infrastructure and other public non-housing, while the decline in maintenance work was steepest in private housing.

The movement of the late May bank holiday to June 2012, the additional bank holiday for the Queen’s Diamond Jubilee and the unseasonal weather were likely contributing factors to the decline in the second quarter, the ONS added.

The hope has been that the construction sector will eventually benefit from various government measures aimed at boosting infrastructure and house-building. The latest initiative has seen the Government launch a scheme to underwrite risk on large infrastructure projects in order to allow work to go ahead on schemes that are stalled due to market conditions.

Graham Robinson, construction industry expert at international law firm Pinsent Masons, said investing in construction is the best stimulus for economic growth but government investment has so far “failed to materialise”.