Construction shrinks by 0.6%

Figures released by the Office for National Statistics (ONS) this morning show that the construction sector shrank by 0.6% in the third quarter of 2011, while GDP as a whole exceeded expectations with a growth figure of 0.5%.

The latest figures represent a blow for the industry given that the second quarter of 2011 had seen output in the construction sector increase by 1.1%.

While the overall GDP figures improved on the 0.4% growth rate predicted by analysts for this quarter, UK GDP is still below its long-term average, and economists have warned against reading too much into the upturn.

Victoria Cadman, an economist at Investec, said: “Given the ‘special factors’ likely to aid the third quarter outturn, coupled with the headwinds of slower euro area growth and the broader risks of the euro area crisis, we would warn against taking such an outturn to imply the UK recovery is gaining pace. Rather, we expect the recovery to creep ahead slowly.”

The government’s plans to rebalance the economy by placing a greater emphasis on exports appear to have been thwarted by the eurozone debt crisis and global economic slowdown. Lack of overseas demand ensured the manufacturing sector was in decline for much of Q3.   

The services sector saw unexpected growth however, posting a 0.7% gain in output. The sector makes up around 75% of the economy, and improvements were visible in business, transport and financial services.