Construction sector back to growth

The construction sector returned to growth in February but failed to offset fears over the pace of the economic recovery in the first three months of the year.

Construction sector output grew at 6.1% month-on-month in February, compared to a 12.9% month-on-month decline in January, the Office for National Statistics (ONS) said. The figures are not seasonally adjusted.

However, economists said it is now likely output in the sector will decline overall in the first quarter of the year, acting as a drag on gross domestic product (GDP) growth and putting pressure on the services sector to help the overall economy avoid recession.

Alan Clarke, UK and eurozone economist at Scotiabank, said the figures were not the "Friday the 13th horror show" feared but were still "not quite as robust as we hoped for".

The UK's economy shrank by 0.3% in the final quarter of 2011, so a further decline in the first three months of this year would mean the country has fallen back into recession.

However, a run of decent purchasing managers' surveys for the manufacturing, construction and powerhouse services sector has boosted hopes that a recession will be avoided.

Mr Clarke has forecast growth of 0.2% in the first quarter after taking into account the impact of today's construction figures.

But a return to growth is not likely to signal a strong rebound as the economy will remain sluggish for the first half of the year at least as households continue to be hit by rising unemployment and as pay fails to keep pace with the rising cost of living.

Samuel Tombs, UK economist at Capital Economics, said a decline in the construction sector, which makes up less than 8% of the total economy, would knock around 0.1% off total growth.

But with industrial production set to decline in the quarter as well, Mr Tombs said the service sector, which makes up 75% of GDP, will "need to have expanded at a decent pace in order to have dragged the overall economy out of recession".

The UK recovery was also shaken by figures yesterday revealing a sharp fall in exports to countries outside Europe.

The trade deficit on goods and services rose to £3.4 billion in February, up from £2.5 billion the previous month and bigger than the £2 billion expected by the City.

Economists warned the figures could drag on the UK's economic growth in the first quarter of 2012.

PA