Plunge in building output fuels UK growth fears

BRITAIN’S third-quarter growth prospects have been seriously dented after construction output fell at its sharpest rate in more than two-and-a-half years.

Building output suffered its biggest fall since December 2012

Official figures yesterday revealed that output plunged by 4.3 per cent in a damp August, marking its biggest fall since December 2012.

The Office for National Statistics (ONS) also said that the deficit in Britain’s trade in goods narrowed in August but was larger than expected and was also set to weigh on growth.

The UK economy has outpaced most other major Western economies for much of the last two years but is widely expected to have cooled in recent months amid a sharp slowdown in China’s growth rate and further weakness in the eurozone. The Bank of England said on Thursday it was keeping interest rates at a record low of 0.5 per cent, with only a single policymaker pushing for a quarter-point rise.Howard Archer, chief UK and European economist at forecasting consultancy IHS Global Insight, described yesterday’s data as a “double blow” for the UK’s growth prospects.

He said: “Overall, the data reinforces our belief that GDP [gross domestic product] growth is likely be no better than 0.5 per cent quarter-on-quarter in the third quarter, and there is now a significant risk that it could have been weaker still.

“This would be down from 0.7 per cent in the second quarter. It would also be below the 0.6 per cent for the third quarter that the Bank of England estimated.”

Earlier this week it emerged that Scotland’s economy was lagging behind the UK, with GDP growing by just 0.1 per cent in the second quarter, a seventh of the rate of the UK as a whole.

Although the construction sector is vulnerable to large monthly swings due to factors such as the weather, in the three months to August output was also down, by 0.8 per cent – the biggest such decline since March 2013, according to the ONS. The expected drag from construction on GDP in the July-September period contrasts with the second quarter when the sector grew by 1.4 per cent.

An ONS official said the weak figures for construction in August may have been linked to rainy weather.

Allan Callaghan, managing director of Cruden Building & Renewals, said he remained cautiously optimistic about the sector’s prospects.

“These latest ONS figures illustrate the mercurial nature of the industry in Scotland of late, a point not lost on operators north of the Border. However, confidence remains in the sector.

“We also expect for all operators to begin to see more projects come to fruition towards the end of the year to meet the needs of the Scottish housing market, a point which will help to stimulate growth and job creation.”

Mark Robinson, chief executive of public sector specialist Scape Group, said: “It is worth remembering that pin-pointing and dwelling on monthly fluctuations is unhelpful and distorts the bigger picture – we should always consider the bigger picture and take a longer view.”