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UK construction rise boosts chance of growth upgrade

by International Commercial Investment on May 15, 2015


UK construction activity bounced back in March, in signs that a recent slowdown in the sector has come to an end.

Output in the sector grew by 3.9pc in March compared with the previous month, while annual growth was estimated to be 1.6pc, according to the Office for National Statistics (ONS).

Housebuilding by private companies grew by 2.3pc in March on a month-on-month basis, following five successive months of contraction. This took the annual rate of expansion in private housing to 11.1pc.

Shallower than expected declines in January and February meant overall output in the first quarter fell by 1.1pc compared with the final three months of the year, less than an initial estimate of a decline of 1.6pc.

The UK economy expanded by just 0.3pc in the first quarter, its weakest pace in three years. The ONS said the better-than-expected construction performance was unlikely to prompt revisions in the overall UK growth figure on its own. However, combined with stronger growth at Britain’s factories in March, economists said that an upgrade was possible.

Industrial production rose by 0.5pc in March, despite predictions that the sector would remain stagnant.

Howard Archer, an economist at IHS Global Insight, said the better than expected performance in both sectors, which together account for 21pc of UK GDP, could prompt an upward revision to overall growth.

“Given that the construction sector only accounts for 6.4pc of GDP, this upward revision will only add 0.03 percentage point to GDP growth in the first quarter. However, industrial production in the first quarter has also been revised up, from contraction of 0.1pc quarter-on-quarter to growth of 0.1pc which will also add 0.03 percentage point to first quarter growth as industrial production accounts for 14.6pc of GDP,” he said.

“Consequently, there now looks to be a very good chance that GDP growth in the first quarter will be revised up to 0.4pc quarter-on-quarter from 0.3pc when the next estimate comes out this month.”

The Bank of England noted in its quarterly Inflation Report this week that uncertainty surrounding this year’s general election “may have delayed some spending for example in the constructon sector”.

However, the Bank added that anecdotal evidence from its own agents suggested there would be little impact on the economy, suggesting a pick-up was likely.

The ONS demoted UK construction data from national statistics status at the end of last year. It has warned that “caution should … be taken” when handling the latest estimates.

International Commercial InvestmentUK construction rise boosts chance of growth upgrade