Weak Construction Sector Puts Pressure On GDP

The construction sector shrank more rapidly than expected in the final quarter of last year adding to fears that wider economic growth for the period will be revised downwards.

Output in the sector fell by 0.4% in the last three months of 2015 following a 1.7% decline in the third quarter, according to the Office for National Statistics (ONS).

It was the first time there have been two quarters in a row of contraction in the construction industry - meaning it is effectively in recession - since 2012.

The figures add to worries about a slowdown in wider economic growth and bolster the likelihood that a Bank of England interest rate hike is still some way off.

House building bounced back in the fourth quarter with growth of 4.1% after a sharp decline in the previous period but infrastructure and repair and maintenance spending fell back.

For 2015 as a whole, the construction sector grew by 3.4% but it is still lagging behind its pre-recession levels in early 2008.

Figures for December on its own offered some hope with expansion of 1.5%.

But the quarterly decline was worse than had been estimated by the ONS when it produced its preliminary fourth quarter figures for the overall growth of the economy, showing gross domestic product (GDP) increased by 0.5%.

The weak performance by construction is on its own not enough to see the GDP figure revised lower.

But economists fear that, combined with a poor showing from industrial production reported earlier this week, it could see the GDP figure cut.

The second estimate for fourth quarter GDP will be published on 25 February.

Alan Clarke of Scotiabank said a downward revision was "almost certain" though a better-than-expected reading for the dominant services sector in December could prevent this.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "There are some positives for the construction sector going forward, but it is clearly vulnerable to confidence among clients being pressurised by heightened UK and global economic uncertainties (Other OTC: UBGXF - news) ."