Growth in construction industry revised up as house building leaps almost 20%

British construction output rose modestly in the last three months of 2013, official figures showed today led by the greatest expansion in the building of new housing since the start of 2008.

Construction output rose by 0.2 per cent in the three months to the end of December, significantly down on the 2.6 per cent seen in the previous three months but stronger than the 0.3 per cent fall in construction reported in the preliminary GDP data for the same quarter.

Britain’s economy grew by 0.7 per cent in the three months to December an initial estimate by the Office of National Statistics showed last month.

However it said the upward revision to construction output would not be enough to impact GDP.

The upward revision to the construction data was helped by a 2 per cent rise in production in December, after a 4 per cent fall in November.

Compared to the same period a year ago the construction industry grew by 6.3 per cent in December, a significant increase on the 2 per cent rise in November, and the biggest rise since September.

Much of the improvement in the construction industry’s fortunes has come from the recovery in the UK housing market which has spurred a revival in house building, aided by government schemes such as Help to Buy and low interest rates.

The ONS said that total housing construction in the last three months of 2013 was 19.8 per cent higher than a year earlier – the strongest increase since 2010.

House prices are up nearly 9 per cent on the year, mortgage lender Nationwide said last month.

That was the biggest rise since 2010, and fears of a possible bubble prompted the Bank of England in November to announce it would scrap the part of its Funding for Lending Scheme that supports mortgage lending.

But house prices have continued to rise and yesterday the Royal Institution of Chartered Surveyors said its members expected prices to rise by 6 per cent a year over the next five years.

The official construction data today follows a report earlier this month which showed the construction sector grew unexpectedly in January. 

The Markit/CIPS purchasing managers’ index rose to 64.6 in January from December’s reading of 62.1, its highest level since the financial crisis and far exceeding forecasts for a reading of 61.5.

It was the sharpest expansion in UK construction activity since August 2007, and well above the 50 mark that separates growth from contraction. Construction accounts for around 7 per cent of Britain’s economy.

British construction output slumped after the financial crisis and remains 12.2 per cent below its pre-crisis peak, a weaker state than in manufacturing or the services sector.

Howard Archer, chief UK and European economist at HIS Global Insight said the data showed the construction industry rebounding and provided reassurance that the sector’s recovery remained firmly on track, adding November’s construction data was clearly a ‘blip’.

He added: ‘Overall the latest construction output and industrial production data point to no revision to currently reported GDP growth of 0.7 per cent in the fourth quarter of 2013.

‘This is notable as when forecasting that the UK economy will grow 3.4 per cent in 2014, the Bank of England assumed that fourth quarter 2013 GDP growth of 0.7 per cent quarter-on-quarter would ultimately be revised up. Of course, there is still time for this to happen and much will depend on the services sector data.’

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