Big jump in housebuilding helps to boost construction output

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Construction output grew solidly in October, led by the biggest rise in housebuilding in more than two years, official data showed yesterday.

An upward revision to construction output in the three months to September is also likely to add an extra 0.1 percentage points to third quarter gross domestic product growth, the Office for National Statistics said.

Construction output rose 2.2 per cent on the month in October after a fall of 0.5 per cent in September.

On the year, output is up 5.3 percent, slowing from an 8.2 per cent increase in September, which was the biggest since January 2011.

This marks a big turnaround from 2012, when construction output fell by 7.5 per cent and was a major drag on overall growth, despite its small share of just over 6 per cent of the economy.

Separate private-sector surveys had reported the biggest expansion in construction activity in over six years in October and November, and yesterday’s official data also suggest the sector will make a strong contribution to overall economic output.

The economy grew by 0.8 per cent in the three months to September, the strongest quarterly growth in three years, according to an early estimate, and further revisions will be published on December 20.

The turnaround in construction this year is down to a marked revival in housebuilding, driven by a government scheme to aid buyers of new homes and a rebound in house prices, which are up nearly 8 per cent on the year, according to mortgage lender Halifax.

This is the biggest rise in over six years, and fears of a possible bubble prompted the Bank of England late last month to announce it would scrap the part of its Funding for Lending Scheme that supports mortgage lending.

But this alone is unlikely to stop further rises in house prices.

The government expanded another scheme to help homebuyers with low deposits in October, and in a set of economic forecasts last week it predicted that house prices would rise by a further 5 per cent next year and by 7 per cent in 2015.

The ONS said that new housing grew by an annual 18.6 per cent in October, the biggest rise since January 2011.

However, overall construction levels remain well below those seen before the crisis, and what economists think is needed to meet demand.

Just 135,000 homes were built in the year to April 2013, down from the more than 200,000 homes a year that were built in the years running up to the financial crisis, government figures show.

Most other construction sectors have yet to return to solid growth. Infrastructure building is 2.8 per cent lower than last year, public building works are down by 6.8 per cent and private industrial work is 26.0 per cent lower.

Private commercial work is growing at an annual rate of 8.7 per cent, however.

The government’s Office for Budget Responsibility predicts a pick-up in business investment next year, and last week the government also said that insurers were willing to commit £25bn to long-term infrastructure pro-jects.