Builders hit the wall as output pauses for breath

Production turned to stone for Britain’s housebuilders in July, official figures signalled on Friday.

Overall construction output was flat on the month as private housebuilding, which had been fuelled by a recovering market and government initiatives like Help to Buy over the past 18 months, grew at virtually half the pace it did in June, slowing from 2 per cent to 1.1 per cent.

A slide in repair and maintenance work also contributed to a stagnation of overall construction output during the month, according to the Office for National Statistics (ONS).

The disappointment brings the pace of annual growth down to an eight-month low of 2.6 per cent, but contrasts with much more positive industry surveys that showed faster growth in July and August. The Markit/Cips index of activity was 62.4 in July, signalling a strong performance. And the index climbed to a seven-month high of 64 in August.

On its current showing in the official figures, however, the industry, accounting for 6.3 per cent of the UK’s overall economy, seems unlikely to make a significant contribution in the current quarter.

The recovery in housing, which started late last year, had been a major driver of construction. But July’s slowdown in private housebuilding, which accounts for more than a quarter of new work, brought year-on-year growth down to a five-month low of 15.9 per cent.

The figures follow signs of cooling in the housing market as the Bank of England ponders the timing of its first interest rate rise since 2007. On Monday the Royal Institution of Chartered Surveyors and the Halifax on Monday pointed to slowing momentum in house prices, which rose 9.7 per cent on an annual basis in the three months to August, slower than July’s 10.2 per cent gain.

Stefan Friedhoff of Lloyds bank said that the true picture could be better than the ONS figures suggest. “The sector will take this data with a pinch of salt, particularly as other industry readings earlier in the month reported optimism among construction firms,” he said.

IHS Global Insight’s Howard Archer said: “Prospects still look relatively healthy for housebuilding even if the growth rate will struggle to match the heady level seen earlier this year. Housing market activity has slowed but should remain decent going forward while the Government is looking to support housebuilding.”

On a three-month basis, which strips out some volatility in the data, construction output was up 0.6 per cent, compared with a flat out-turn in the three months to June, the ONS said.

However, the weakening growth trend for new housing looks set to continue, with orders in the second quarter of 2014 down 4.3 percent, compared with a 3.8 per cent rise for all new work.