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Construction slowdown fuels fears that UK recovery has lost momentum Construction slowdown fuels fears that UK recovery has lost momentum
(about 2 hours later)
A slowdown in the construction sector has fanned fears that the UK's recovery has lost momentum in recent months. A slowdown in the construction sector has fanned fears that the UK recovery has lost momentum in recent months.
Official figures showed the industry suffered its sharpest slowdown for more than a year during the three months to May, with output falling 0.8% from the previous three months.Official figures showed the industry suffered its sharpest slowdown for more than a year during the three months to May, with output falling 0.8% from the previous three months.
The more volatile monthly figures showed that construction output dropped 1.1% from April to May as private housebuilding stagnated – the latest sign that the property market may be coming off the boil.The more volatile monthly figures showed that construction output dropped 1.1% from April to May as private housebuilding stagnated – the latest sign that the property market may be coming off the boil.
The figures capped off a week of disappointing data including a surprise slump in factory output and an unexpectedly wide trade deficit in May. That raised concerns over the impact a stronger pound is having on exporters after the currency has strengthened markedly over the last year. The figures capped off a week of disappointing data including a surprise slump in factory output and an unexpectedly wide trade deficit in May. That raised concerns over the impact a stronger pound is having on exporters after the currency strengthened markedly over the last year.
Howard Archer, the chief UK economist at IHS Global Insight, said the latest construction numbers were "another blow to second quarter growth hopes".Howard Archer, the chief UK economist at IHS Global Insight, said the latest construction numbers were "another blow to second quarter growth hopes".
"Until recently, it had looked highly likely that GDP growth in the second quarter at least matched the 0.8% quarter-on-quarter expansion achieved in the first quarter, but this is now looking increasingly questionable," said Archer."Until recently, it had looked highly likely that GDP growth in the second quarter at least matched the 0.8% quarter-on-quarter expansion achieved in the first quarter, but this is now looking increasingly questionable," said Archer.
Other economists have pointed to business surveys that tell a more upbeat tale with order books, hiring and output all on the up. Other economists have pointed to business surveys that tell a more upbeat tale with order books, hiring and output rising.
The Office for National Statistics said that in annual terms, construction output in May was up 3.5%, the slowest pace of growth for six months. The slowdown came as a 19.4% annual rise in housebuilding was offset by year-on-year falls in output for infrastructure work and private commercial projects.The Office for National Statistics said that in annual terms, construction output in May was up 3.5%, the slowest pace of growth for six months. The slowdown came as a 19.4% annual rise in housebuilding was offset by year-on-year falls in output for infrastructure work and private commercial projects.
But the latest official numbers contrasted with a poll of businesses published last week that suggested construction activity surged in June. Housebuilding was the main driver as the Markit/CIPS construction PMI rose to a four-month high of 62.6 in June from 60 in May. A reading above 50 indicates growth.But the latest official numbers contrasted with a poll of businesses published last week that suggested construction activity surged in June. Housebuilding was the main driver as the Markit/CIPS construction PMI rose to a four-month high of 62.6 in June from 60 in May. A reading above 50 indicates growth.
Chris Williamson, the chief economist at Markit, which compiled the survey, said the latest official numbers should be interpreted with caution. Chris Williamson, the chief economist at Markit, which compiled the survey, said the latest official numbers should be interpreted with caution. "The data leave us scratching our heads, as surveys and anecdotal evidence from the sector point to booming business conditions. There's a strong likelihood that either these latest numbers will get revised higher or that June will see a strong rebound," he said.
"The data leave us scratching our heads, as surveys and anecdotal evidence from the sector point to booming business conditions. There's a strong likelihood that either these latest numbers will get revised higher or that June will see a strong rebound," he said.
"Even with this disappointing construction number, the official data available so far and the PMI surveys indicate that the UK economy enjoyed another robust economic expansion in the second quarter, at least matching the 0.8% growth seen in the first quarter. Once the volatility in the official data is accounted for, there's also little sign of momentum waning as we move into the second half of the year.""Even with this disappointing construction number, the official data available so far and the PMI surveys indicate that the UK economy enjoyed another robust economic expansion in the second quarter, at least matching the 0.8% growth seen in the first quarter. Once the volatility in the official data is accounted for, there's also little sign of momentum waning as we move into the second half of the year."
Construction, which accounts for around 6% of the economy, was hit hard by the recession and still remains around 10% below its pre-crisis peak. Policymakers have warned that despite a pick-up in housebuilding, the supply of homes still lags behind what is needed to meet demand in the UK. Construction, which accounts for about 6% of the economy, was hit hard by the recession and still remains around 10% below its pre-crisis peak. Policymakers have warned that despite a pick-up in housebuilding, the supply of homes still lags behind what is needed to meet demand in Britain.
That mismatch has seen average house prices gain around 10% over the last year. But there have been signs in recent weeks that property price inflation is starting to moderate. House prices defied City economists' forecasts for another monthly rise and slipped 0.6% in June, according to mortgage lender Halifax. A separate report from the Royal Institution of Chartered Surveyors (Rics) suggested tough talk from the Bank of England over the threat of a housing bubble and the tightening of lending rules dampened the housing market last month. That mismatch has resulted in average house prices gaining about 10% over the last year. But there have been signs in recent weeks that property price inflation is starting to moderate. House prices defied City economists' forecasts for another monthly rise and slipped 0.6% in June, according to mortgage lender Halifax.
A report from the Royal Institution of Chartered Surveyors suggested tough talk from the Bank of England over the threat of a housing bubble and the tightening of lending rules dampened the housing market last month.
Espírito Santo
Financial markets regained some poise on Friday as fears abated about the potential spread of problems at one of Portugal's biggest banks.
The suspension of shares in Banco Espírito Santo on Thursday had sparked panic selling on both sides of the Atlantic amid concerns that it would lead to a wider run on the eurozone's debt-ridden banking sector.
Some of those losses were recouped on the FTSE 100 yesterday and the main indices in Portugal, Spain and Italy all rebounded.
However, analysts warned that some fundamental problems in the single currency bloc remained unresolved.
Michael Hewson, chief market analyst at CMC Markets UK, said: "Events in Portugal are a wake-up call to complacent investors who believed that Europe was starting to address its peripheral banking problems, and while on their own events surrounding Espirito Santo could well be contained, the fact that these problems surrounding the solvency of peripheral banks have come at a time when the recovery in Europe shows signs of stalling is particularly concerning," said Hewson.
"Debt-to-GDP ratios are already eye-wateringly high, and this week's stunning capitulation in May industrial production data from Germany, France, Italy and the Netherlands has raised fears that the so-called eurozone recovery has become stuck in quicksand, and without growth to erode the debt levels, the money that has flowed into Europe could well come flooding back out."