There is no doubt that the UK economy is now firmly in a growth phase with the latest GDP figures showing economic output only 0.6% below its pre-crisis peak in Q1 2008

Michael Dall

This has been primarily driven by the service sector; no surprise given the nature of the UK economy.

While construction has also grown over recent months and has grabbed its share of positive headlines, the story appears to be more nuanced. Comparing the first quarter this year to the equivalent period in 2013, construction output grew by 5.4% which, on the face of it, appears to be a good return. However, that is still 12% below the levels recorded at the start of 2008, indicating there is significant room for growth.

Analysing the sectors within construction also provides a note of caution. New work in the private housing sector grew by 23.1% but commercial growth, the single biggest sector within construction, was only 1.3%, and infrastructure actually declined by 4.8%.

Analysing the value of contracts awarded over recent months, the patterns in the residential sector appear set to continue, with Barbour ABI showing the value of contract awards 27.9% higher than this time last year. However, the contract award value in the commercial sector has actually declined over the same period by 9%. While it has experienced an upturn in recent months, this longer-term fall in contract award values could hinder future growth potential. There is better news on the infrastructure sector though, with the value of contract awards 4.9% higher than last year.

With the housing market under constant scrutiny amid fears of a housing bubble and subsequent price crash, there are clear risks associated with growth focused on the residential sector. Longer-term indications of significant growth in the commercial and infrastructure sector would go a long way to reducing any risks from a slowdown in the housing sector.

So while construction is growing there is a danger that it is too reliant on housing and broader growth is needed to ensure a robust recovery. It is not a problem yet, but it is useful to be wary of such a narrow pattern of growth and hope that the commercial sector in particular can start to motor. Otherwise, the path to pre-recession levels of output may be more fragile and take much longer.

Michael Dall is an economist at Barbour ABI

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