British economy may be in deeper recession as construction output data is lowered | WPN World People News

Britain's economy may have shrunk more than previously estimated in the first quarter with revised government data released Friday showing that construction output was lower than initial estimates.

The Office of National Statistics (ONS) has revised construction figures for the first quarter of 2012 downwards from 4.8 per cent given last month to 3.0 per cent drop , signifying that economy was deeper in recession than earlier feared.

The ONS said the revision would shave another 0.1 percentage point off GDP growth if all other factors remain the same.

The slump in construction output was one of the main drags on the economy in the first quarter. Official data last month showed that the economy shrank by 0.2 per cent, putting Britain back into recession for the second time in the current economic downturn.

The Bank of England and many economists have however voiced doubts about the data as business surveys have painted a more positive picture.

Economists suggest the worse-than-expected construction figures make it likely that the next official GDP estimate, which is published on May 24, will now be revised down by 10 basis points to show the economy shrank by 0.3%.

Howard Archer, chief UK and European economist at IHS Global Insight, says: "First-quarter construction output data from the ONS are both dismal and perplexing. They increase the mystery over the true state of the construction sector."

Expressing doubts about the first quarter output data from the ONS, Archer acknowledged "there is no denying that the sector faces significant headwinds that are likely to limit the upside for activity."

The updated data has shattered hopes that official figures will be revised back in line with other more optimistic surveys.

The ONS said the total volume of construction output fell by 4.8 per cent compared with the previous quarter, down from the 3 per cent decline previously thought. Infrastructure showed the largest decrease at 15.9 per cent.

The extent of the construction slump has surprised the City, while the Bank of England said the contrast with other industry figures was perplexing.

Markit chief economist Chris Williamson said: "If these official data are correct, it paints a very worrying picture of the health of the UK economy, especially in relation to infrastructure investment.

"However, our belief is that surveys give a better guide to the underlying state of the economy and that, although far from enjoying a period of robust and sustainable growth, the country is managing to see some expansion after the weak patch seen late last year."

The Construction Products Association has blamed the cut in public sector spending for the state of the construction industry.

In a statement, Noble Francis, Economics Director at the Construction Products Association, said: "The construction industry is now firmly back in recession and, although there are some areas of growth, such as private housing, the overall picture shows an industry clearly suffering from the effects of public sector cuts."

He pointed out that public housing output fell 11 per cent during the first quarter of 2012 and public non-housing, which covers education and health, fell 7 per cent in the first quarter.

Equally worrying, although government expected that the private sector would fill the void, the first quarter figures show that this was not the case.

Construction output in the private sector also contracted, suffering from poor confidence and lack of lending. This was evident in the private commercial, the largest construction sector, which fell by 7.1 per cent in first quarter.

Source: Britain News.Net