Economy watch: Output declines

The week’s economic news has been dominated by the latest estimate of GDP for the first quarter of the year from the Office for National Statistics, and associated data. The figures showed GDP as a whole rose by 0.2% in the first quarter compared with the last quarter of last year and, likewise, the construction component of it also increased by 0.2% – confirming the estimate published at the start of May. However, that modest quarter-on-quarter growth hides a less optimistic picture, of month-on-month falls in output in the last three months – with March’s fall of 0.7% the steepest of all.

The overall 0.2% increase in GDP was, in addition, slightly less than the 0.3% statisticians had been expecting, adding to the sense of a gently slowing economy, where inflation is starting to drag down on consumer spending.

More heartening, however, was data released the same day showing that both business investment and overall capital investment by businesses, individuals and the state (known as Gross Fixed Capital Formation) was continuing to rise at a modest pace – a crucial metric for the construction industry, which benefits from much capital investment. Prior to the EU referendum there was significant concern that business investment would fall in the event of a leave vote, but Ruth Gregory at Capital Economics says the data suggests “Brexit uncertainty has not significantly weighed on firms’ spending plans”.

Also heartening were official housebuilding figures showing housing starts rose 3% in the first quarter to 43,170 – a rise of more than a fifth on the figure a year ago. Starts in the year to March totalled 162,860, 15% higher than the previous year.