Office for National Statistics figures show economy contracted by 0.7% in Q2, with construction output down 5.2%

The UK remains recession after the latest official figures for the second quarter of 2012 showed that the economy contracted by 0.7%, dragged down by a fall of 5.2% in construction output.

The 0.7% drop in GDP was the biggest fall in quarterly UK economic output since the first three months of 2009 and the third successive quarterly contraction, leaving the economy in recession.

The fall is much sharper than the 0.2% contraction analysts predicted.

On a year-on-year basis, the UK economy is now 0.8% smaller than 12 months ago, the ONS said.

The ONS said the extra Diamond Jubilee bank holiday and poor weather both hit economic activity in the last three months.

Construction output decreased by 5.2% in Q2 compared with Q1, following a decrease of 4.9% between Q1 and Q2 2011, meaning the sector has contracted by around 10% since the turn of the year.

Reaction to the GDP figures

Simon Rawlinson, EC Harris head of strategic research & insight, said the figures showed a “really poor performance for the UK economy”.

He said: “It should be noted that these GDP figures are seasonally adjusted, so the fact that they are so grim even with this adjustment shows just how bad things are.

“Whilst this may come as a shock to many, I do think the GDP forecasts were overly optimistic. Over the past few months, construction output data has been declining steadily, so a further fall in construction and, therefore, GDP should not be too surprising.

“What is worrying is that the slowdown is effecting other sectors of the economy, including manufacturing. Whilst there have been some unexpected elements, such as the bad weather, this doesn’t explain all the poor performance. Last week’s announcement by the Government that it will back funding in infrastructure was very welcome, but it will not have an immediate effect on GDP.

“Overall, I think the UK economy may have bottomed out over the past quarter, and should rebound during the rest of this year, however I fear that construction will continue to struggle. There is no sign of an increase in aggregate construction orders, so this sector is likely to decline further.”

Noble Francis, Construction Products Association economics director, said the figures showed construction was now in a “deep depression” despite a number of recent initiatives by government to spur growth.

He said: “Although the vast majority of commentators have been predicting continuing recession, very few will have expected such a sharp fall. For construction the position is now very worrying, as although we have known for some time that public sector activity would begin to decline, because of the government’s deficit reduction plan, the hoped for recovery in the private sector has not materialised.

“As the construction sector is such a key part of the economy, until we see recovery in construction, we will not have the economic growth the UK needs.

According to our latest forecasts, which were published this week, construction is unlikely to return to growth until 2014. Government has acknowledged that construction will be a part of the solution for our economic woes, but if they are serious then they must act now to stimulate growth and drive recovery.”

Civil Engineering Contractors Association director of external affairs Alasdair Reisner said the figures showed that recession in the construction sector was “once again the biggest contributor to negative growth in the economy”.

“CECA is calling for action to increase activity in the construction sector across the UK as a matter of urgency.

“While we welcome steps the government has taken to facilitate long-term growth through infrastructure provision, it is in the interest of everyone to stem the current collapse in the industry.

“CECA believes more can be done to halt this malaise through the unlocking of stalled projects and targeted investment. We have been working with government and other industry bodies to identify means by which an immediate uplift in activity in the sector may be effected, by identifying work that may be rapidly released across the UK.

“It of paramount importance that the government makes achieving growth in the construction sector

Brian Berry, Federation of Master Builder chief executive, said the outlook for the remainder of the year was no “gloomy”.

He said: “On the one hand we know the Government recognises the importance of construction to the economy. Officials know that every £1 invested in construction generates £2.84 in total economic activity.

“But on the other hand, the initiatives coming through from government are not enough to offset the deep cuts in public spending.”

“The private sector is not leading the economic recovery in the way the Government hoped. Therefore, we think it is now time for the government to think more openly about stimulating private sector demand, particularly for the industry’s hundreds of thousands of small businesses.

“The Chancellor should cut VAT on all housing repair, maintenance and improvement work to 5%, which would provide a big stimulus to the UK economy and create over 100,000 new jobs by 2020.

“It would provide immediate help to private landlords or local authorities to bring more existing properties back into use, and provide a bit more certainty about demand for the Government’s flagship energy efficiency scheme the Green Deal.”

 

 

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