UK construction output stagnates in July as housebuilding slows

By Andy Bruce and David Milliken LONDON (Reuters) - British construction output stagnated in July as a rapid expansion in house building started to level off, causing annual growth to sink to an eight-month low. However, orders for new work rose at the fastest rate in a year, leaving economists confident that the coming months would bring robust growth, particularly as earlier private-sector surveys have also pointed towards a continued strength. Construction output was unchanged on the month in July, compared with growth of 1.2 percent in June, the Office for National Statistics said on Friday. Annual growth more than halved to an eight-month low of just 2.6 percent. But orders looked more upbeat, rising by 3.8 percent in the second quarter from the first three months of 2014, the biggest rise in a year. "Signals from survey and order book data suggest the construction industry has fared better than the official output data would have us believe over the summer," said Chris Williamson, chief economist at Markit. "Upward revisions to the output data are possible. This would mean GDP could get revised up, painting a more buoyant picture of the economy than previously thought and adding to the argument for interest rates to rise." Earlier this week, Bank of England Governor Mark Carney said interest rates could rise in spring if the jobs market continues to recovery at a quick pace. There was little market reaction to the construction figures, with investors fixated on the risk that Scotland could vote to break away from the rest of the United Kingdom in next Thursday's independence referendum. The construction sector was hit hard by the financial crisis but has been recovering since last year along with the broader economy, buoyed by falling unemployment and strong consumer and business confidence. A separate survey carried out by Markit recently showed Britain's construction industry expanded at its fastest pace in seven months in August, boosting job creation but also putting strain on suppliers. HOUSING SLOWDOWN? A recovery in housing which started late last year had been a major driver of construction growth in 2014, but there are now tentative signs it is tailing off. Private sector home building rose 1.1 percent on the month in July, down from 2.0 percent growth in June. The annual growth rate fell to a five-month low of 15.9 percent. The weakening trend for new housing looks set to continue, with orders in the second quarter of 2014 down 4.3 percent. Private-sector surveys have painted a mixed picture of the housing market recently, with some pointing to surging house price growth and others showing a marked slowdown. But the weakness in orders for private housing were balanced by strength elsewhere, and the ONS highlighted a 9.6 percent increase in commercial orders, driven by plans for new shopping centres. "It's encouraging that new orders are continuing on a positive trajectory," said Michael Dall, lead economist at construction data company Barbour ABI. "But with the rate of growth slowing from recent quarters, today's announcement still isn't the silver bullet we need to dispel all concerns about sector." (Editing by Toby Chopra)