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Robust construction sector could protect UK from growth downgrade
14/08/2015
The construction sector's recent strength could be enough to avoid a UK growth downgrade, analysts have said.
Construction output rose by 0.2pc in the second quarter, compared to ONS estimates that growth in the sector would remain flat on the previous quarter.
The robust performance was driven by new housing, infrastructure and public works projects, offsetting declines in repair and maintenance in areas such as public housing.
June was a particularly strong month, with output jumping 0.9pc, although this was weaker than most analysts had hoped for.
Economists had pencilled in an average estimate of a 2pc rise in the month, while none had expected growth to be as low as 0.9pc, according to a poll.
The improved quarterly figures were also down to upward revisions to data in in May and April. The sector is now believed to have contracted less sharply in the spring months - with a flat outcome in April and 1pc decline in May.
The Office for National Statistics (ONS), which compiled the data, said that the upward revision to output in the second quarter would not be enough by itself to have a meaningful effect on GDP as the sector makes up just 6.4pc of the total figure.
However, the positive construction figures might well be enough to offset weak industrial data in the same quarter. That could ensure that when the ONS revisits its GDP estimates, it might not have to cut its estimate.
But Alan Clarke, of Scotiabank, cautioned that the second quarter growth estimate - currently 0.7pc - will depend on upcoming service sector data. "When the Bank of England outlook is such a close call, at the margins, a downward revision would take some pressure off to hike [interest rates] this side of Christmas," he said.
The methodology for calculating construction output was overhauled by the ONS at the end of last year, as the data were downgraded from "official statistics" status.
It introduced an interim solution for compiling the sectoral data in June. Data published since December has been subject to large revisions, in cases enough large enough to affect estimates of overall GDP growth.
Mark Robinson, chief executive of public sector procurement organisation SCAPE, said that the June data showed a reversal of the trend seen over the last few months, "which is great news for the construction industry".
After a slow start to the year and uncertainty around the general election, the market is feeling more confident and the industry is starting to bounce back
Mark Robinson, SCAPE, Group Chief Executive
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