Official data paints mixed picture for UK economy

New house building slowed at its sharpest rate for nearly four years. Picture: PA

The fall of almost 6 per cent was the steepest since October 2011, and dragged the wider construction sector to a 1.3 per cent contraction – its weakest performance since February last year – according to the Office for National Statistics (ONS).

There was some better news for the economy from separate ONS data showing that the UK’s trade deficit fell to its lowest level since June 2013 in May, down to £393 million from £1.8 billion in April.

However, the fall in the trade deficit was the result of imports decreasing rather than overseas sales powering ahead – as exports remained unchanged.

David Kern, chief economist at the British Chambers of Commerce, said: “On first glance the trade figures are exceptionally good. However, it would be premature to celebrate the virtual disappearance of our trade deficit.

“Beneath the surface we see that exports in current prices were unchanged between April and May and in volume terms exports fell by 3.4 per cent. It’s also important to note that the main reason for the fall in the deficit was the fall in imports, not a significant rise in exports.

“If these figures signal the start of an improving trend then that is positive. However, the longer term data suggests that we still have some way to go to close our trade gap for good.”

Howard Archer, chief UK and European economist at IHS Global Insight, the forecasting consultancy, said the two sets of figures presented “really mixed news” for second-quarter growth prospects.

“There is now a very real risk that construction output contracted in the second quarter and was a drag on GDP growth (although it only accounts for 6.4 per cent of GDP),” he noted.

“In contrast, it looks like net trade could have made a positive contribution to second quarter GDP growth after being a major drag in the first quarter.”

The weak construction data highlights the challenges facing the industry as Chancellor George Osborne set out plans which will see developers south of the Border automatically given permission to build on suitable disused industrial land.

More derelict brownfield plots could also be seized for development and major infrastructure projects including housing fast-tracked under the measures.

The slump in housebuilding in May reverses a sharp rise of 5.3 per cent in the previous month. The contraction in the wider sector is the second month in a row that it has shrunk, with the decline deepening after a 0.5 per cent fall in April.

The ONS trade figures showed the deficit in goods narrowed to a better-than-expected £8bn – the lowest level since June 2013. But the deficit in April was revised upwards from £8.6bn to £9.4bn. A surplus in services for May was flat at £7.6bn.

Yesterday’s data followed disappointing figures from the manufacturing sector earlier this week, showing a second month of decline.