UK economy to ‘reverse gains’ as construction drags growth
The UK economy’s modest gains from the first half of the year are set to be reversed as the flagging construction industry is set to hammer growth prospects, economists have said.
A poll of economists, tracked by Bloomberg, believe GDP contracted by 0.1 per cent in June, partly unwinding previous gains.
Pantheon Macroeconomics analysts said a “sharp fall in construction activity” would drag growth back while services and production output would also “stagnate”. New figures for June are set to be published on Thursday.
The construction sector has long been in the doldrums, with firms consistently reporting job cuts. Official data has suggested that there has been moderate growth in recent releases, with output growing by 1.6 per cent in the three months to May.
Construction output is projected to have dropped by as much as 0.7 per cent in June alone, however.
Accommodation and food within services are set to also weigh down on the UK economy, though higher spending due to the World Cup could positively surprise economists, it has been noted.
Altogether, weak economic readings in some major services sub-sectors will “partly unwind possibly erratic rises in May” when the Office for National Statistics recorded growth of 0.1 per cent.
Deutsche Bank economists said clothes sellers, pubs, and art galleries likely received a boost from warm weather over June, preventing a sharper fall in activity across the UK economy.
UK economy could still beat expectations
New data on Thursday could point to some relatively positive news on the UK economy compared to previous forecasts.
In the first three months of the year, the UK economy grew by 0.6 per cent, beating analysts’ expectations.
Expectations could be beaten again for the second half of the year. Some think tanks and City economists, including the National Institute of Economic and Social Research and Barclays’ Jack Meaning, previously projected growth of just around 0.2 per cent.
Economists now believe growth will reach 0.4 per cent, shaking off concerns that the Iran war would torpedo growth and weaken business prospects.
Sanjay Raja of Deutsche Bank said that household consumption would provide a “modest boost” to growth in the second quarter of the year as retail sales have risen above expectations.
Sunny weather and England’s anticlimactic run in the World Cup have helped to keep momentum, although business investment “likely remained subdued”. The bank said it expected a contraction of 0.5 per cent between April and June compared to 0.7 per cent growth in the first three months of the year.
“That said, the quarter still saw a steady flow of announced investment projects tied to data centres, clean energy and advanced manufacturing, implying that while large strategic investments continue to arrive, the broader corporate sector remains hesitant amid elevated uncertainty and a soft demand backdrop.,” Raja said. He added that government spending also likely lifted the UK economy over the three-month period.
Barclays economist Meaning suggested predictions were over-reliant on S&P Global’s closely-monitored purchasing managers’ index, which has recently “failed to capture” true growth changes shown in the official release.