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UK construction industry in surprise slowdown in May
The Guardian

11/07/2014, Britain's construction sector has suffered its sharpest slowdown for more than a year after housebuilding activity stalled in May, in the latest sign the property market may be coming off the boil.

Construction output dropped 0.8% over the three months to May from the previous three months, the biggest fall since October 2012, according to the Office for National Statistics. The more volatile monthly figures showed that in May alone, construction output dropped 1.1% from April as private housebuilding stagnated but public housebuilding grew.

Construction output in May was up 3.5% on a year earlier, but that was the slowest pace of annual growth for six months.

The latest official numbers contrast somewhat 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, where anything above 50 indicates growth.

Chris Williamson, chief economist at the compilers of that survey, Markit, said the latest official numbers should be interpreted with caution given they may well be revised.

"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 number 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."

But Howard Archer, chief UK economist at IHS Global Insight, said the latest construction numbers were "another blow to second quarter growth hopes" following news this week that industrial production dipped 0.7% in May and figures on Thursday showing the trade deficit widened.

"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.

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. Housebuilding has helped drive the sector's recovery and is up almost 20% on a year ago, according to Friday's official figures. But policymakers have warned that the supply of new homes still lags far behind what is needed to meet demand in the UK.