New figures show big jump in UK output in construction

BRITAIN'S economy may be growing at a faster rate than earlier predictions if a jump in construction output feeds through to the bottom line.

Revised figures from the Office for National Statistics (ONS) yesterday revealed the strongest jump in output from the UK construction sector since the second quarter of 1963.

Like then, the 2010 Q2 performance was driven by a sharp rebound following an unusually harsh winter.

One economist described the 8.6 per cent quarterly rise - against an initial estimate of 6.6 per cent between April and June - as a "one-off snow melt boost".

However, a spokesman for the ONS said that, other things being equal, the upgrade would add 0.1 percentage points to the second quarter's 1.1 per cent GDP growth rate.

That initial UK estimate caught analysts by surprise last month - expectations had hovered around the 0.6 per cent mark.

Most economists expect a Q2 rate of 1.1 or 1.2 per cent to represent a peak in the pace of recovery before growth slows or even returns to negative territory later this year and next due to impending budget tightening.

Fears of a double-dip recession were further stoked yesterday as economists reacted coolly to news of the fastest growth in eurozone output in more than three years.

Official figures showed GDP in the 16-nation currency zone growing by 1 per cent in the three months to June, driven by Germany's biggest quarterly expansion since reunification two decades ago.

Positive numbers were also recorded for France, Italy and Spain. Greece, however, saw its economy shrink by 1.5 per cent during the quarter as far-reaching government austerity measures kicked in.

Jennifer McKeown at Capital Economics said it was unusual for growth in the eurozone to outpace that in the US but also highlighted concerns about the strength of the recovery in "peripheral economies", such as Greece and Ireland.

Carsten Brzeski, an economist with ING, said the German economy - the largest in Europe - was in a "league of its own" and put the impressive growth down to "a catching up in the construction sector after the harsh winter and strong foreign demand for German goods". But he warned the current growth momentum was unlikely to be sustainable.

"With the one-off impact from the construction sector and normalising of export growth, Germany will return to more ordinary growth numbers."

According to the revised UK construction data, Q2 output was also sharply higher than a year earlier.

Private home-building rose 9 per cent on the year, and was 22 per cent stronger over the quarter. Gains were even more marked in publicly-funded work, with home-building surging 11 per cent on the quarter and 62 per cent year-on-year - a 30-year record.Construction accounts for about 6 per cent of total economic output.

Alan Clarke, UK economist at BNP Paribas, said: "It does look incredibly strong, but there were good reasons for construction to be strong in Q2.

"The snow had melted and the government was spending in a final fling before the election. Will it last? I doubt it. It was a one-off snow melt boost."

The British Chambers of Commerce said the German growth figures highlighted the importance of exports as a "component of a sustainable recovery".

David Kern, the BCC's chief economist, added: "While there are elements of the German model that are problematic, UK ministers and businesses can learn lessons from Germany's export success."