UK construction sees sharpest fall in 3 years

British construction output fell in a rainy August at its sharpest rate since late 2012, adding to signs that overall UK economic growth slowed in the third quarter, official data showed yesterday.

The Office for National Statistics (ONS) also said the deficit in the country’s trade in goods narrowed in August but was larger than expected and it was also set to weigh on growth.

Britain’s economy has outpaced many other advanced nations for much of the last two years but is widely expected to have slowed in recent months along with the global economy. The Bank of England said on Thursday it was keeping interest rates at a record low of 0.5%.

Construction output plunged by a monthly 4.3%, its biggest fall since December 2012, contrasting with a median forecast for growth of 1% in a Reuters poll of economists.

Construction makes up about 6% of Britain’s economy. In the three months to August — smoothing out what is often volatile monthly data — output fell by 0.8%, marking the biggest such decline since March 2013, the ONS said.

The expected drag from construction on GDP, in the July to September period, contrasts with the second quarter when the sector grew by a quarterly 1.4%. An ONS official said the weak figures for construction in August may have been linked to wet weather during the month.

There might be better news ahead for the sector. An industry survey published last week showed growth in construction hit its fastest pace in six months in September, boosted by the revival of residential projects that had been put on hold earlier in the year, before May’s national election.

Yesterday’s data showed housebuilding in August fell by 3% from July and output in other parts of the sector also contracted for the first across-the-board decline since 2010. UK house prices have picked up again after a slowdown in the second half of 2014 caused by tighter mortgage lending rules.

A group representing surveyors warned this week that the recovery could be hurt by a shortage of homes available for sale. The government is seeking to stimulate house-building.

The trade figures showed that Britain’s deficit in its trade in goods narrowed to £11.149bn (€15.02bn) in August compared with £12.203bn in July. Economists in the Reuters poll had expected a smaller shortfall of £10bn. Including Britain’s surplus in services, the overall deficit fell to £3.268bn.

Britain’s trade deficit narrowed sharply between April and June, boosting economic growth in the period. However, economists have said the improvement is unlikely to last, given signs of a slowdown in the global economy and a strengthening of sterling in recent months. The ONS said that the combined goods trade deficit for July and August already stood at double the shortfall for the second quarter as a whole.

Reuters