September 14, 2012 / 11:28 AM / 6 years ago

Modest bounce in construction puts UK closer to growth

LONDON (Reuters) - UK construction activity grew 2.2 percent in July and fell less sharply than previously thought in the second quarter, data showed on Friday, adding to signs the economy is slowly edging out of recession.

Workers erect steel on a construction site in Leicester, central England, October 26, 2010. REUTERS/Darren Staples

Falling output in the building sector has been a major drag on the UK economy since it entered a slump late last year, and underlying conditions remain tough, with the sector falling 10.1 percent on the year in July.

But Friday’s figures did support evidence of moderate growth in overall economic output in the current quarter and a smaller-than-reported fall in the second, economists said.

“The ...rise in construction output in July provides a modest lift to third-quarter growth prospects,” said IHS Global Insight economist Howard Archer.

But July’s figure was probably flattered by knock-on effects from two public holidays in June to celebrate Queen Elizabeth’s 60 years on the throne, and prospects remained poor despite government measures to boost the sector.

“The construction sector continues to be hampered by major headwinds, notably including public spending cuts, a weak economy, a struggling housing sector, and problems in getting funding for large-scale projects,” Archer said.

Construction output fell 3.0 percent rather than the initially estimated 3.9 percent in the second quarter from the first. That meant the period’s 0.5 percent GDP contraction would be trimmed to 0.4 percent, Archer and other analysts said.

The UK economy is already tipped to post some growth between July and September, with a Reuters poll on Wednesday pointing to 0.6 percent expansion, after earlier data showing in July industrial output grew at its fastest pace in 25 years and retail sales rose unexpectedly.

Sales of tickets for the London Olympics and Paralympics which took place between July and September may add 0.2 percentage points to quarter-on-quarter growth, the Office for National Statistics estimates.

Some recent business surveys have also shown an improvement.

However, any economic bounce in the third quarter may be short-lived. On Thursday, Next (NXT.L) and John Lewis JLP.UL, two of Britain’s best-performing retailers, warned of a slowdown in an already troubled sector.

And a survey by accountancy group BDO, which measures business performance expectations two quarters ahead, showed optimism among British firms slumped to a 20-year low last month.

The main drag on construction was the sharp slide in new work, the ONS said.

Editing by John Stonestreet

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