For the First Time in 4 Years, Recession Technically Hits UK Construction Sector

Official figures that show the UK’s construction industry, which was struggling even before the vote to leave the EU,  has slipped back into recession for the first time in four years.

Construction activity in the months ahead would be further dented as the business and consumer confidence in the business since the referendum has dropped, experts say.

Output in the industry dipped 0.7% in the second quarter of 2016, the Office for National Statistics said. In the previous three months there was a drop of 0.3% in business in the sector. Since 2012, when the eurozone debt crisis shook confidence across Europe, the UK constriction sector for the first time saw two consecutive quarters of falling output – a technical recession.

The ONS noted that there was “very little anecdotal evidence at present to suggest that the referendum has had an impact on output” even though it said that its latest figures included a short period after the 23 June referendum.

Broadly in line with forecasts for a 1.0% drop, for June alone, construction output was down 0.9%.

A blow to private sector investment plans from the referendum and government spending cuts have been identified as the primary reasons for the troubles of the industry, say economists. Pressure had intensified after the referendum, suggested a recent business survey by the data group Markit. The sharpest contraction since mid 2009 was signaled by the PMI report.

“June’s official data confirm that the construction sector re-entered recession in the first half of this year, as public sector cuts and Brexit risk took their toll,” Samuel Tombs, the chief UK economist at Pantheon Macroeconomics said commenting on the latest news from the sector.

“The downturn looks set to deepen in the third quarter. July’s construction PMI broadly is consistent with output falling by about 3.5% quarter-on-quarter. Meanwhile, Brexit negotiations will be protracted, so businesses will hold off committing to major capital expenditure for a long time to come,” Tombs added.

The ONS had estimated a more modest fall in construction output of 0.4% when it published figures last month showing a relatively strong GDP growth of 0.6% in the second quarter. However, given that construction only accounts for about 6% of the UK economy, there will be no discernible impact on the GDP figures due to the higher figure of 0.7%. However fears for construction jobs would still be fanned due to the  hwoevere fact that the figures show the sector was already in recession before the referendum result.

The government should be prompted to do more to support housebuilding due to the signs of a post-referendum slowdown, said the National Housing Federation. The loss of nearly 120,000 construction jobs over the next decade could be the result of a slowdown in housebuilding similar to that of the 2008 recession, warned the group which represents non-profit housing associations.

“We know that an uncertain economic environment will cause builders to put the brakes on. Our country’s prosperity and thousands of citizens’ livelihoods depend on a strong building sector. We cannot let a slowdown take hold,” said the federation’s chief executive, David Orr.

“Housing associations have a track record of building through tough times, having upped their output through the last recession when private developers could not. With the right flexibility from government, and at no extra cost to the taxpayer, housing associations can keep the nation building,” he added.

(Adapted from The Guardian)

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