The construction sector has had a mixed bag of fortunes this year. In June, the revised GDP figures from the Office for National Statistics (ONS) revealed that Britain's economic output had grown more than predicted and put the unexpected growth down to construction's strong performance.
The figures confirmed that GDP rose by 0.4 per cent in the first three months of the year, rather than the 0.3 per cent that had been predicted. New methods used to measure construction output were said to have played an important role with Joe Grice, chief economist at the ONS, noting that the upward revision is “down largely to the recently announced new methods to measure construction output”, which have a greater reliance on real world hard data.
Construction starts to falter
The sector might have started the year on a high, but when the ONS looked back on the second quarter and honed in on April and May it found that output dropped by 1.3 per cent between the two months, when economists had been expecting a 0.2 per cent rebound. Annual output for the sector remained up at 1.3 per cent, but there is further concern that when the figures for the second quarter as a whole come in, they will show a contraction for the three-month period.
Howard Archer, chief European and UK economist at IHS Global Insight, told the Financial Times: “There is now a very real risk that construction output contracted in the second quarter and was a drag on . . . growth.
“Indeed, construction output would have needed to grow 2.3 per cent month on month in June to have avoided contraction in the second quarter.”
Optimism remains high
Despite the dubious results from the ONS data for the second quarter, positivity in the construction sector remains high. Markit's Purchasing Managers' Index for June rose to a healthy 58.9 in June, up from 55.9 in May – any reading above 50 indicates growth.
Tim Moore, senior economist with Markit, commented: “UK construction companies experienced a growth rebound and surge in business confidence at the end of the second quarter.
“Survey respondents cited robust inflows of new work in June, adding to already strong order books across the sector.”
The data at the moment presents a mixed picture when it comes to construction's immediate future. It looks like optimism is being fuelled at least in part by the healthy future pipelines many businesses are eyeing up – such as the ten new schemes and 800 new homes in Harbur Construction's £68 million project pipeline.
Individuals and businesses looking to invest in the sector will need to weigh up the downward trend seen in the second quarter data, with the positive start to the year and the optimistic outlook of many involved the sector itself. Getting this right and finding the right niche could provide some excellent returns, but it will need close market monitoring to increase the chances of success.
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