Construction output blow adds to fears of a slowing economy

August's bad weather proved a setback to the construction industry but there seems to be plenty of activity in the Yorkshire region.
August's bad weather proved a setback to the construction industry but there seems to be plenty of activity in the Yorkshire region.
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Wet weather in August put a dampener on construction output which fell at its sharpest rate for almost three years, fuelling worries that the UK economy slowed down in the third quarter.

The Office for National Statistics (ONS) also said the UK’s trade deficit narrowed in August and is also set to weigh on growth.

The ONS said Britain’s building output in August fell by 4.3 per cent, its biggest fall since December 2012.

It said new construction projects in August fell by 3.6 per cent, while repair and maintenance work slumped by 6.5 per cent.

In the three months to August – smoothing out what is often volatile monthly data – output fell by 0.8 per cent, the biggest decline since March 2013.

Construction makes up six per cent of Britain’s economy.

The UK economy has outpaced many other developed countries for much of the last two years, but economists fear growth has slowed in recent months alongside the global economy.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Seriously bad news overall for third quarter GDP growth prospects as construction output plunged in August and the trade deficit recorded another appreciable shortfall as exports remained relatively limited despite improving after a sharp drop in July.”

Mr Archer added the data backed his view that GDP growth is likely be no better than 0.5 per cent in the third quarter, and could be weaker still.

But Giles Taylor, KPMG’s head of property & construction in the North, said: “It’s a downbeat story that doesn’t quite resonate in this region, based on the activity levels my client base is experien-cing.

“Yorkshire abounds with examples of projects being green-lighted or completed, such as Lateral Property Group’s £135m Five Towns Park development in Castleford, including a new stadium for the Tigers.

“Looking east, ahead of its year as City of Culture in 2017, Hull is also a hotbed of construction prospects, in part on the back of commitment given to Government projects such as the linkage between the city centre and the waterfront over the A63.”

He added that regional housebuilders are also upbeat, with profitable plans underway for the strong supply of land available in the context of rising consumer demand.

“Yorkshire may be bucking the national trend but I’m inclined to conclude we are just seeing a lagging of data behind activity,” said Mr Taylor. The Bank of England estimates UK growth in the third quarter will come in at 0.6 per cent, which is down on the second quarter of the year when the economy grew by 0.7 per cent.

On Thursday it decided to keep interest rates at a record low of 0.5 per cent.

The expected drag from construction on gross domestic product in the July-September period contrasts with the second quarter when the sector grew by 1.4 per cent.

An ONS official said the weak figures for construction in August may have been linked to wet weather during the month.