Britain's GDP growth in line for hike

City A.M. Reporter
BRITAIN'S second-quarter GDP growth could be revised up by 0.1 percentage points to 1.2 per cent after construction output expanded even faster than expected, official data showed on Friday.

Revised construction output of 8.6 per cent – versus an initial estimate of 6.6 per cent – would add 0.1 percentage points to Q2's 1.1 per cent GDP growth rate, other things being equal, a spokesman for the Office for National Statistics said.

The ONS said that the construction output growth was the strongest since the second quarter of 1963, and like then was driven by a sharp rebound following an unusually harsh winter.

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

"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," he added.

The initial GDP estimate of 1.1 per cent growth in the second quarter was the strongest in four years. Most economists expect it to represent a peak in the rate of recovery before growth slows later this year and in 2011 due to slowing overseas demand and impending budget tightening.

Second-quarter construction output was 9.1 per cent higher than in Q2 2009, an even stronger upward revision from the 5.8 per cent annual growth estimated in the second-quarter GDP series. Construction accounts for about 6 percent of British economic output.

Private home-building rose 22 per cent on the quarter and 9 percent on the year, while private commercial work was up 5 per cent on the quarter but down three per cent on the year.

Gains were even more marked in publicly funded work. Home-building rose 11 per cent on the quarter and 62 per cent on the year - giving the highest total public housing construction output since the second quarter of 1980.

Infrastructure spending increased seven per cent on the quarter and 35 percent on the year, giving the highest total infrastructure spending since the third quarter of 1993.

Britain's previous Labour government, which lost power in May's election, brought forward planned public construction spending to ease the impact of the country's deepest recession since World War Two.

The new Conservative/Liberal Democrat coalition government plans sharp cuts in capital spending to rein in Britain's record budget deficit, for example scrapping plans to repair schools.