UK economic growth hit by subdued construction
THE UK’s economic growth slowed in the final three months of the year, according to official estimates.
The economy was 0.5 per cent larger in the final three months of 2014 compared to the previous three months. It compares to 0.8 per cent growth from April to June and 0.7 per cent from July to September.
The services sector – which constitutes 78 per cent of output – grew by 0.8 per cent. The slowdown was instead due mostly to construction where output declined by 1.8 per cent, according to the data released yesterday by the Office for National Statistics.
The fact that the slowdown was concentrated in the construction sector may ease some concerns.
“Domestically the economy was strong, with services expanding robustly. It is worth noting that the construction drop is completely at odds with business surveys and anecdote, making a bounce back likely,” said economist Christian Schulz from investment bank Berenberg.
Michael Dall, an economist at construction data specialists Barbour ABI, also believes construction activity could be quick to recover.
“A fall in the level of commercial output is the main reason for construction’s poor performance in the final quarter,” he said. “However, according to our latest data, the industry should benefit from sustained investment in commercial projects and there is evidence that some major infrastructure projects will commence – including those signalled in the recent Autumn Statement.”
Economists at consultants Fathom are more pessimistic. “Three months ago we told clients that the UK’s debt-fuelled sugar high was fading,” they said. They note that the fall in GDP growth is consistent with weakness show in recent business surveys.
Fathom analysts argue that any boost to real incomes – income adjusted for inflation – resulting from low oil prices will result in higher levels of debt being paid off rather than a greater level of spending.