Construction rebound fails to raise recovery hopes

A REBOUND in construction output does not point to a sector on the mend, experts warned yesterday, as fears over the health of the UK economy persisted.

Despite accounting for less than a tenth of gross domestic product (GDP), construction was a major drag on growth during the first half of last year, helping push the UK back into recession.

It remains touch-and-go whether the economy will grow at all in the first quarter after a 0.3 per cent contraction in the closing months of 2012. Two back-to-back quarters of decline would herald the third recession in less than five years.

According to official figures yesterday, construction output was 7 per cent lower in February than a year ago but 5.5 per cent up on January. A rebound can often occur at that time of year due to weather disruption.

Brian Hilliard, economist at Société Générale, said: “The month-on-month increase in February sounds encouraging but still leaves output well below the level seen before the winter weather arrived in December.”

Factoring in the likely impact from construction on GDP, Hilliard said his estimate was for flat to 0.1 per cent growth in the wider economy.

Alan Clarke, strategist at Scotia­bank, added: “Irrespective of whether we get 0.1 per cent growth in the first quarter or a 0.1 per cent contraction, it’s the same message: the UK economy is hardly growing at all.”

Construction activity is highly responsive to the economic cycle and output has fallen by 16.5 per cent when comparing the final quarter of 2012 with the first quarter of 2008, just ­before the onset of a global downturn caused by the ­financial crisis.

Activity so far this year has been hit by a severe and ­prolonged winter, but there are signs that public sector infrastructure cuts are also having an impact.

A recent survey of hundreds of purchasing managers showed construction output contracting for the fifth month in a row in March. The only bright spot has been house-building, where a tentative recovery appears to be taking hold.

Howard Archer, chief UK economist at IHS Global Insight, said the latest survey evidence suggested construction was continuing to struggle.

“The key question is will the construction sector see any significant improvement in its fortunes after its very difficult start to 2013 and a pretty torrid 2012.

“The sector undeniably still faces significant headwinds, notably including limited public investment and spending, an extended weak economy, comparatively limited housing market activity and problems in getting funding for large-scale projects.”