Concern grows over state of the construction sector

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ECONOMISTS warned the outlook for the construction sector looks increasingly fragile after output volumes slumped 4.1 per cent in August versus a year earlier.

Figures from the Office for National Statistics showed construction output volumes edged up 0.4 per cent in August from July.

However, volumes in the three months to the end of August were 1.9 per cent lower than in the same period a year ago, with new work falling by 1.8 per cent and repair and maintenance down 2.2 per cent.

The construction sector, which makes up 7.6 per cent of gross domestic product (GDP), grew by 1.1 per cent between April and June, but economists said yesterday’s data suggests a weaker performance in the third quarter.

“Construction industry output appears to be collapsing, according to the latest official data,” said Markit economist Chris Williamson. “There is a clear and worrying downward trend in the health of the industry so far this year, which corroborates a similar downturn in the construction PMI survey.

“While we continue to expect the economy to have grown in the third quarter, largely due to a rebound from disruptions to business in the second quarter, the downturn in the construction sector provides further cause to worry about the overall health of the economy.”

Cuts in public sector spending on new schools, hospitals, buildings and infrastructure are dampening output, while private sector building manages only a slow recovery from the recession.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The soft construction output data for August tie in with other recent largely worrying news on the construction sector.

“Furthermore, the latest purchasing managers’ survey indicated that overall construction activity was essentially stagnant in September, which was the weakest performance so far this year.

“It is evident that the construction sector faces an extremely challenging environment, which threatens to limit activity over the coming months.

“And if the economy continues to struggle markedly over the coming months, there is the danger that construction activity will be hit increasingly hard by projects being on hold or cancelled altogether.”