UK construction sector dip compounds week of disappointing economic data

Nassos Stylianou
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UK construction output suffers surprise dip (Source: Getty)

The British construction sector seems to have lost its momentum.

In another tentative sign that the swift economic recovery construction has been enjoying of late could now be slowing, construction in the UK retreated by 1.1 per cent in May according to the Office of National Statistics, a stark drop in light of economists predicting a 1.9 per cent rise.

Construction had soared in the last six months, with housebuilding accounting for one third of new building work, compared to 19 per cent last year. In May, private sector housing, which accounts for around 75 per cent of new housing, showed no growth in May.

There were falls in repair and maintenance work on private and public housing.

The latest deflating data release from the Office of National Statistics (ONS) comes the same week as a surprise drop in manufacturing production, which contracted 1.3 per cent in May.

Construction output was still actually up 3.5 per cent on the same month last year, but the slump has now cast doubt over the optimistic outlook for GDP growth in the second quarter.

"Until recently, it had looked highly likely that GDP growth in the second quarter at least matched the 0.8 per cent quarter-on-quarter expansion achieved in the first quarter, but this is now looking increasingly questionable," said Howard Archer, chief UK economist at IHS Global Insight.

There is also a serious risk that construction output will actually post an overall contraction in the second quarter, as output will need to grow by 2.5 per cent month on month to June to ensure a dip in Q2 is averted. The sector's overreliance on housebuilding and insufficient growth in other areas such as infrastructure could be a key factor for May's slump.

It's not all doom and gloom, however.

According to Archer, there is hope for the future as the "latest survey evidence is very healthy overall".

Scott Corfe, managing economist at the Centre for Economics and Business Research, cautions against being too concerned by the latest construction and industrial output releases.

"It is just one month of data and we expect both sectors to record expansion in June," he says.

Construction output in the UK could soon reignite its spark.

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