High hopes for growth dashed after construction data blunder

GOVERNMENT number crunchers were left red-faced yesterday after a statistical blunder dashed hopes of an upturn in economic growth during the three months to June.

Official data had signalled that GDP in the second quarter could potentially be revised up to 0.3 per cent from a previous estimate of a lacklustre 0.2 per cent.

This followed calculations by the Office for National Statistics (ONS) that showed Britain's construction industry expanding by 2.3 per cent in the quarter - significantly more than an earlier projection of 0.5 per cent.

However, four hours after the 9:30am announcement yesterday, officials admitted to an "arithmetical error", eventually releasing a statement at 4:30pm which revised the construction figures back down to 0.5 per cent.

Crucially, this is no longer enough to provide a noticeable boost to the overall growth figures. The construction sector accounts for just below 7 per cent of the UK economy.

The highly volatile construction output data has been questioned before by economists and surveys such as the widely monitored purchasing managers index (PMI) have painted a much more optimistic picture of the sector than the official data.

Earlier this month, the Markit/Cips PMI suggested that the construction industry continued to grow in July, with improved confidence and new orders, although employment levels fell for the second successive month.

Optimism rose among the nation's builders after hitting a six-month low in June, with more firms believing they would be busier over the coming year.

The ONS, which produces information on behalf of the UK government, said a second estimate for GDP growth was due on 26 August. Other factors, including possible revisions to service sector output, may yet influence the outcome.

The construction sector had helped to drive the UK's recovery in the first three quarters of last year as it bounced back from savage cuts to major building projects made during the recession.

Accountancy firm RSM Tenon yesterday warned that while the situation was improving for some building companies, it was seeing "a lot of construction firms drifting towards failure".

Out of an estimated 159,618 construction companies in the UK, RSM noted that 37,657 fell into the "red" category, suggesting they are at "high risk of imminent insolvency".The proportion - just under 24 per cent - is up 4 percentage points on a year earlier.

RSM said its data was compiled from statistics at Companies House, as well as "several other sources".

Meanwhile, figures yesterday showed commercial property values had risen by just 0.1 per cent last month, following on from 0.2 per cent in June, with the market's slowing rebound from the global financial crisis and a fall in retail values pushing the growth rate to its lowest since the recovery began.

Investment Property Databank said property values had gained 17.6 per cent in the past two years, having tumbled about 45 per cent during the financial crisis.

IPD managing director for UK and Ireland Phil Tilly said: "The balance between the performance of prime assets and the more challenged secondary markets remains finely poised."