Construction slump may trigger UK recession

Published:  11 July, 2011

LONDON: The construction slump may force Britain back into recession, say experts.

Construction industry output grew by 0.4% in May, and slumped 12.4% the previous month. The 0.4% rise in activity last month was far below the estimates of most economic commentators. The Office for National Statistics said the sector was dragged down by a 5.9% fall in private industrial work, which offset rises in public housing starts and new infrastructure projects.

Alan Clarke of Scotia Capital warned the economy could be slipping back into recession. "For some time we have seen significant risks that GDP growth will be around zero in [the second quarter]. The incoming monthly data for May have reassured our expectations of near zero growth. In fact, it is looking more and more likely that we might see another negative quarter for GDP growth," he said.

He joined several other economists in saying that figures this month showing a slowdown in manufacturing and severe pressure on the services sector, combined with the poor construction figures, could push the economy into reverse when official second-quarter GDP figures were published on 26 July.

Construction industry expert Tom MacLennan, of accountants RSM Tenon, said the outlook for many building firms was bleak. "Looking at balance sheets, nearly 37,000 construction companies - almost a quarter of the sector - are at high risk of insolvency. By contrast, only 20,800 firms - 13% of the industry - have very healthy cash flow," he said.

"Construction companies face a nasty combination of circumstances - materials are costly, the government has cut back on capital spending on infrastructure, and UK businesses remains chastened by the pre-crash building boom.

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