Construction Falls Fuelling Triple Dip Fears

Construction Falls Fuelling Triple Dip Fears

Output in Britain's construction sector has slumped to the lowest level since the mid-1980s, further raising the prospect of Britain returning to recession.

Activity in the sector dropped by 6.3% in January, following a 16.3% fall in December.

It takes the sector's monthly output to a mere £6.7bn - the lowest level since the Office for National Statistics (ONS) started compiling monthly figures in 2010.

If the sector's output remains steady at this level for the entire first quarter, it will be the weakest three months for construction since mid-1986 - but month-on-month figures can be highly volatile.

Although the sector accounts for just 6.8% of Britain's total economic output, it has, according to the ONS, already "provided some of the main downward contributions to total output since the recession".

"Construction output is highly responsive to the economic cycle and fell by 16.7% when comparing the last quarter of 2012 with the first quarter of 2008," the ONS said.

"More positively, business confidence in the industry was upbeat this month, though it remains to be seen whether a sustained recovery can be made."

Alan Clarke of Scotiabank said the figures "make a triple dip in the UK increasingly likely".

Michael Saunders of Citigroup said: "Given that the data are not seasonally adjusted, one must be careful about going from these data to prospects for Q1 GDP. But, the data look weak.

" ... With only one month of Q1 data so far, the uncertainties in this estimate are clear, but Q1 has not got off to a good start."

The poor figures are consistent with a big fall in construction output reported by Markit in its PMI of the sector in the first two months of the year.

But while the manufacturing and building sectors of the economy are struggling, the services sector, which accounts for around three quarters of the economy, is expanding faster than expected, which may prevent the economy contracting in the first quarter of the year.

Given that the technical definition of a recession is two successive quarters of contraction, and that Britain's economy shrank in the final quarter of last year, a fall this quarter would put the UK officially back in recession.

The construction sector and commercial property market have been at the epicentre of Britain’s financial crisis and recession, facing as they do a major fall in property prices coupled with a large overhang of debt.

A recent Financial Services Authority study showed that around a third of British commercial real estate loans by value have been subject to forbearance - despite interest rates being at a record loan.

Insiders suggest the picture may have worsened since then.