Britain's economy contracted slightly in the three months ending in July, although the estimate was distorted by an extra public holiday and another postponed day off to mark Queen Elizabeth's 60 years on the throne, a leading think-tank said on Tuesday.

Gross domestic product fell by 0.2 percent in the period, after official data showed a sharp contraction of 0.7 percent between April and June, the National Institute of Economic and Social Research said in its monthly estimate.

“These estimates suggest the UK's large negative output gap is widening,” NIESR said. “We do not expect output to pass its peak in early 2008 until 2014.”

The one bright spot was that NIESR's monthly GDP index rose to 102.4 in July from 101.0 in June, taking it to its highest level since December, raising the prospect that Britain's economy may exit recession in the third quarter.

NIESR's estimate followed official data showing that Britain's manufacturing output shrank by 2.9 percent in June, sapped by extra public holidays, though the drop was smaller than first estimated.

On Wednesday, Bank of England Governor Mervyn King looks set to give another gloomy outlook for Britain, as the country's economy continues to suffer from the effects of the euro zone debt crisis and a domestic austerity programme. - Reuters