Construction output takes heat out of UK economy

Britain’s economy may have stepped down a gear after the construction sector shrank year-on-year for the first time in more than two years as housebuilding and other commercial work declined.

Vaughan Hart of the Scottish Building Federation

Official figures yesterday showed that the sector contracted by 0.7 per cent in July compared to 12 months earlier, the first such fall since May 2013. Economists had expected a rise of 0.9 per cent.

On a month-on-month basis the construction industry shrank by 1 per cent in July compared to June, when it had lifted by 0.9 per cent. Experts had expected to see a rise of 0.5 per cent for July.

However, industry bosses north of the Border said the data from the Office for National Statistics (ONS) pointed to record output from the Scottish construction sector over the 12-month period, with a value of more than £13 billion.

Vaughan Hart, managing director of the Scottish Building Federation, welcomed the news but said employment levels within the industry remained well below pre-recession levels.

“The industry is facing increasingly critical skills shortages across many trades,” he said. “Our members also continue to advise us that operating margins remain extremely tight.

“Against the backdrop of these record output figures, our absolute priority must be to attract more people back into the industry, to rebuild skills and capacity and put the industry’s recovery on a sustainable long-term footing.”

The ONS figures for the UK as a whole showed levels of both public and private housing as well as other types of commercial work all fell month-on-month. New work fell across the sector fell by 1.5 per cent, while repair and maintenance work was flat.

The data comes amid a flurry of figures that suggest overall economic growth is easing.

A recent industry survey showed the powerhouse services sector grew at its weakest pace for more than two years in August, while this week official figures for July showed exports fell to their lowest level in four years while manufacturing saw a steep fall.

Howard Archer, chief UK and European economist at IHS Global Insight, said the construction figures added to signs “that the economy is seeing a softer third quarter”.

He added: “It currently looks like GDP growth will come in no better than 0.5 per cent quarter-on-quarter in the third quarter.”

This would be a slowdown from 0.7 per cent growth in the second quarter.