Construction falls but factory gate prices firm

The construction sector remained stuck in the doldrums in October, according to official estimates published yesterday, although an upward revision in data for previous months gave comfort to economists.

The Office for National Statistics (ONS) said total volume of construction output was down 2.5 per cent against September, and down 2.7 per cent against the figure for October last year. Volumes in the three months from August to October were down 1.1 per cent against the same period a year ago, with new work declining by 1.8 per cent as repair and maintenance volume edged up by 0.5 per cent.

Though weak, the impact of the early estimates for October were offset by changes to the data for the third quarter. Economists took heart from news that the estimate for output in the three months to September had been revised to show a rise of 0.3 per cent, compared with the previously reported decline of 0.2 per cent. Data for for earlier quarters was also revised upwards.

"While construction only accounts for 7.6 per cent of GDP on the output side, this lifts hopes that some modest upward revisions could be made to GDP growth in the third quarter, and over the past year," said Howard Archer, pictured, chief UK and European economist at IHS Global Insight. "On the face of it, the October... data are disappointing and do not bode well for fourth quarter performance. But the data can be revised markedly."

But he acknowledged that the sector remained on the back foot. "What is clear is that the construction sector is facing an extremely challenging environment, which threatens to seriously limit activity over the coming months," he warned.

Separately, the ONS said output prices for UK sales of manufactured goods – the prices paid by domestic companies at the factory gate – were up by 0.2 per cent in November after remaining unchanged in October. But, encouragingly, core prices, which strip out food, drink, tobacco and petroleum, were unchanged on the month, taking the year-on-year increase to 3.2 per cent in November.

That compares with 3.3 per cent in October and a peak of 3.7 per cent in September, boosting confidence in the Bank of England's expectation of a sharp retreat in consumer price inflation in coming months.

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