U.K. Construction Output Declines to Lowest Since 1998
U.K. construction output fell to its lowest level in more than 14 years in the first quarter as work on new building projects declined across the industry.
Output measured by volume dropped 2.4 percent from the previous three months to its lowest since the fourth quarter of 1998, the Office for National Statistics in London said today. That compares with the 2.5 percent decline estimated in gross domestic product data on April 25. The revision has no impact on GDP, which rose 0.3 percent in the period, the ONS said.
Construction, which accounts for 6.8 percent of the economy, has been hit hard by government budget cuts and the credit famine. Output has fallen by about a fifth from its pre-recession peak five years ago, double the decline in manufacturing. The industry is now pinning its hopes on the Bank of England’s Funding for Lending Scheme, government pledges to unlock infrastructure projects, and initiatives announced in the March budget to extend home ownership and spur house building.
With data yesterday showing no revision to industrial-production growth in the first quarter, “it doesn’t look like that the GDP number will be substantially revised,” said Jens Larsen, chief European economist at RBC Capital Markets in London. “Construction has been one of the weakest parts of the economy. Looking ahead, it has the potential to recover, but it really does depend on the government initiatives coming on stream.”
Quarterly construction data are adjusted for seasonal factors. Unadjusted output rose 12.1 percent in March following a gain of 8.7 percent in February and a drop of 5.9 percent in January, when work was disrupted by freezing weather. It was down an unadjusted 7.4 percent in March from a year earlier.
Recent surveys suggest the industry may be picking up momentum. An index of activity rose to 49.4 in April from 47.2 in March, just below the level that divides expansion from contraction, Markit and the Chartered Institute of Purchasing and Supply said on May 2. Construction knocked 0.2 percentage point off GDP in the first quarter and the FTSE All-Share Construction and Materials Index has fallen 6.7 percent this year compared with a 13 percent increase in the overall index.
The Stoxx Europe 600 Index added 0.1 percent at 1:45 p.m. in London, extending the highest level in almost five years as Group of Seven finance ministers prepared to meet outside London. As he arrived for the talks, Chancellor of the Exchequer George Osborne told reporters that while “stability and confidence” had returned to the global economy, there was “much more to do.”
Separate ONS data today showed the U.K.’s goods-trade gap was little changed at 9.06 billion pounds ($14 billion) in March compared with 9.17 billion pounds in February.
Exports rose 4.9 percent on the month and imports gained 3.2 percent. A higher deficit in oil was offset largely by sales of chemicals to countries outside the European Union, the ONS said.
Exports to the EU, the largest market for British goods, were unchanged, with shipments to the recession-plagued euro region falling 1.2 percent. Sales to non-EU nations rose 10 percent. The services trade surplus was 5.93 billion pounds in March, leaving a total trade gap of 3.13 billion pounds.
In the first quarter, the trade deficit in goods narrowed to 26.4 billion pounds from 27.1 billion pounds, raising the possibility that net trade provided a modest boost to growth. The next estimate of GDP including a breakdown of spending in the period will be published on May 23.
Elsewhere in Europe, Germany said exports advanced 0.5 percent in March, matching economist estimates and adding to signs that the euro area’s largest economy is starting to recover from a contraction at the end of last year.
In Italy, industrial production fell more than economists expected in March, indicating there is little sign the country’s longest recession in two decades is easing. Output decreased 0.8 percent from February, when it fell a revised 0.9 percent, national statistics office Istat said. Economists forecast a monthly decline in March of 0.3 percent, according to the median of 13 estimates in a Bloomberg survey.
The fall in U.K. construction in the first quarter was led by a 3.2 percent drop in new work, with all sectors posting declines with the exception of private housing and repair and maintenance, the ONS said.
The pound fell against the dollar following the reports and was trading at $1.5390 at 10:58 a.m. London time, down 0.4 percent on the day.
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