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Weak UK construction data adds to signs of cooling growth

The amount of new housing built in Britain fell for the first time in more than two years in July, despite rising house prices, driving a broader decline in construction that adds to signs that the country's economy is slowing.

The official figures on Friday contrast with bumper profits reported by house-builders and follow weak manufacturing figures which have raised questions about whether growth is cooling as the Bank of England comes nearer to raising interest rates.



A builder assembles scaffolding as he works on new homes being built for private sale on a council housing estate, in south London June 3, 2014. Andrew Winning Reuters


House-building in July was 2.5 percent lower than a year earlier, the first fall since March 2013, and the slowdown looks set to continue with the volume of orders for new housing at its lowest since early 2013.

Private commercial work, such as building shops and offices, also fell, and overall construction output in July was down by 0.7 percent on the year, the first fall since May 2013 and bucking economists' expectations for a 0.6 percent rise.

"This indicator continues the theme of disappointing data for Q3, which includes weaker (purchasing managers') surveys, disappointing industrial production and tentative evidence that retail sales were soggy," said Alan Clarke, head of European fixed income strategy at Scotiabank.

Britain's economy has been growing rapidly over the past couple of years, chalking up an above-average 0.7 percent expansion in the three months to June, but most economists expect a modest slowdown in the third quarter of 2015.

At the same time, Bank of England Governor Mark Carney has said that the decision over when to raise interest rates for the first time since 2007 is likely to come into sharper focus around the turn of the year.

A survey published by the BoE on Friday showed that nearly half of Britons expect interest rates to rise in the next 12 months, the highest proportion since May 2011.

Some BoE policymakers worry that even though inflation is near zero at the moment, it could rebound rapidly due to limited spare capacity in the British economy, pushing annual price growth above its 2 percent target in the next couple of years.

Following the construction data, one industry expert blamed restrictive immigration rules for making it hard to attract skilled building workers from outside the European Union.

"There is a chronic housing shortage and although we welcome government plans to build 200,000 new homes by 2020, there is no chance of that number being built unless desperate skills shortages in the industry are addressed," said Michael Thirkettle, chief executive at consultants McBains Cooper.

The Royal Institution of Chartered Surveyors forecast on Thursday that house prices would rise 6 percent this year, twice its previous estimate, largely due to a lack of housing.

The weak ONS data contrasts with a more upbeat picture painted by industry surveys and results from housebuilders -- both of which reflect the performance of larger players in the industry than the ONS survey, which covers more small firms.

A series of British housebuilders have posted large profit rises in recent months with the largest builder by volume, Barratt, saying on Wednesday that it had seen a strong start to the new financial year with a 32 percent rise in forward sales.

(Additional reporting by William Schomberg; Editing by Hugh Lawson)


Further Reading :

House price inflation gathers pace as market conditions tighten further August 2015 update