UK growth outlook brighter after new construction data

UK growth outlook brighter after new construction data

ONS points to higher GDP reading for first quarter as new figures show building sector performance better than feared

Britain's economy grew faster than previously thought in the opening months of this year, according to estimates from the Office for National Statistics, after it emerged that the construction sector had a better start to 2015 than feared.

The ONS now says construction was not such a big drag on the wider economy in the first quarter of 2015. As a result, economic growth was probably 0.4% rather than the 0.3% previously estimated, barring any changes to estimates for other sectors.

That still marks a slowdown from 0.6% growth estimated for the previous quarter, but overall the new figures paint a brighter picture of construction and the wider economy.

The latest official estimates for GDP growth will not be released until 30 June. But a stronger performance from the construction sector could mean growth last year is revised up to 2.9% from the 2.8% previously reported, the ONS said. It was forced to apologise after incorrectly stating alongside the construction statistics that revisions for the sector could take annual GDP growth to an even higher 3.1%.

The ONS has changed the way it calculates price changes in the construction sector and the way it adjusts its data for seasonal factors such as the timing of public holidays. With previously unseen data included as well, the ONS now estimates construction output fell just 0.2% in the first quarter, rather than by 1.1% as previously estimated.

"This upward revision of growth of 0.9% provides an upwards revision of 0.1 percentage points to the growth rate of GDP,"

the ONS said.

Statisticians now think construction output fell just 0.2% in the first quarter of 2015, rather than the 1.1% drop previously estimated. This chart shows the shallower dip under the latest figures, arrived at using an "interim solution" for calculating price changes in the sector. The chart shows the quarterly path for output in the construction industry, all work, seasonally adjusted, £ million, Great Britain. Photograph: Construction: Output & Employment - Office for National Statistics

Construction makes up 6.4% of the economy and has been struggling to add to overall UK growth as it recovers from a particularly deep recession. But recent business surveys have suggested construction firms are starting to feel more upbeat, reporting the general election has removed some uncertainty among customers.

Chris Williamson, chief economist at data company Markit, which publishes surveys of construction businesses, says the latest reports have been optimistic and the revised official figures now echo that.

"The UK economic upturn over the past year has been stronger than previously thought after substantial data revisions show that the construction sector has not acted as such a drag on the economy. The revisions bring the economy's performance more into line with recent survey evidence,"

he said.

He noted a pick-up in activity and expectations in Markit's latest survey of the sector, the PMI report, conducted after May's Conservative victory at the polls.

Said Williamson:

"Optimism about the year ahead surged to a nine-year high, suggesting that companies viewed the election result as favourable for their businesses.

"Our expectation is therefore that building activity, and growth in the wider economy, will continue to revive in coming months, though the strong pound and prospect of rising interest rates will probably mean 2015 growth fails to match the impressive expansion that the ONS now estimates was seen in 2014."

The revisions in the ONS data overshadowed figures for the most recent month showing a drop in construction output. In April, output fell 0.8% after increasing by 1.4% in March. On the year, output increased by 1.5%. That was the 23rd consecutive month of year-on-year growth, but was the weakest pace of expansion since November 2013.

Economists cautioned against reading too much into the single month's figures.

Commenting on the figures, Howard Archer, economist at IHS Global Insight said:

"The 0.8% month-on-month dip in construction output in April was likely impacted by increased uncertainty ahead of the general election and is probably little to worry about."

This article was amended after the ONS restated its estimate for the impact on GDP growth in 2014. It had previously said a stronger construction performance could raise GDP growth to 3.1%.

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