Builders boost construction but sector remains weak

By GARETH MACKIE
Published on 09/02/2013 00:00

SIGNS of improvement in the construction sector have raised expectations that the UK’s economic contraction at the end of last year may have been shallower than previously feared.

Higher activity in the private housing market saw the Office for National Statistics (ONS) upgrade its estimate for construction growth during the final three months of 2012, although activity remains well below the levels seen last year.

According to its latest estimate, construction sector output grew by 0.9 per cent compared with the third quarter, well above the 0.3 per cent growth it previously reported. A 5.9 per cent rise in private housing work provided the biggest contribution to the increase, followed by a 4.2 per cent upturn in infrastructure activity.

Howard Archer, chief UK and European economist at IHS Global Insight, said the upgrade had raised the chances of a small revision to fourth-quarter GDP, which is currently estimated to have shrunk by 0.3 per cent.

He added: “However, as construction output only accounts for 6.8 per cent of national output, the upward boost to GDP from this revision works out at about 0.04 percentage points.”

Archer said the “underlying weakness” of the sector was highlighted by the fact that output remains 9.3 per cent lower than a year ago, and 17.1 per cent below the peak seen in Q1 2008.

However, there were signs from housebuilders yesterday that the housing market is continuing its recovery following the crash of 2007.

Bellway, the UK’s fourth largest builder, said demand remains “resilient”, with a 5.8 per cent increase in sales to 2,957 homes during the first half of the year.

Average prices rose 2.3 per cent to £187,000 and chief executive Ted Ayres said schemes such as the Scottish Government-backed MI New Home initiative – which helps people buy new-build homes with just a 5 per cent deposit – were making a positive impact.

Along with rivals such as Barratt, Bovis and Persimmon, the group is benefiting from increased margins, having bought up cheap land following the downturn in the market.

Meanwhile, Livingston-based Walker reported a surge in profits following a 73 per cent jump in turnover last year, although it said the industry continued to battle against the availability of mortgages and low confidence in the market.

The builder, which has so far not signed up to the MI New Home scheme, delivered a pre-tax profit of £3 million for the year to September 2012, compared with just £24,000 a year earlier, on turnover of £24.2m. Average selling prices rose from £205,000 to £249,500.

In the company’s annual report, the directors said: “Financial markets continue to constrain mortgage finance to satisfy house buyers’ needs and apply overly-conservative lending criteria on new-build property.”