- Construction sector output fell 1.9% in February, ONS says
- Industry hopes interest rate cuts will boost demand
Construction output plunged in February, hurting overall economic growth as wet weather and high interest rates hit activity.
Construction industry output in the month fell 1.9 percent in volume terms, slowing GDP growth to just 0.1 percent after all other sectors showed growth, they showed. on Friday the figures from the Office for National Statistics.
The drop, which marks a 1 per cent contraction in the three months to February, was driven by a drop in activity in eight of nine sub-sectors, with private housing repair and maintenance the only area of growth, adding 0 .2 percent.
Project delayed: Construction sector production affected by bad February weather
Non-housing repair and maintenance and new private commercial work were hardest hit, contracting by 2.5 percent and 4 percent, respectively.
Experts attributed the decline to particularly bad weather during the month, which delayed construction projects after more than double the usual amount of rain in February, according to the Met Office.
But the sector has also been hampered by the dominant influence of the British housebuilding sector, which is building fewer homes this year.
The Bank of England’s increase in the base rate to its current level of 5.25 per cent has pushed up mortgage rates, leading to a fall in new home purchases and a slowdown in house price growth. .
Repair and maintenance work has led construction since 2020 amid weak production in the rest of the sector.
Housing, building materials and trades stocks are down about 1 percent over the past month, led by a 5 percent drop for home builders, as investors fear the possibility that interest rates interest stay high for longer.
Nicholas Hyett, investment analyst at Wealth Club, said the construction sector “is in the doldrums” and “an interest rate cut could be very helpful.”
The overall improvement in economic output globally, combined with higher-than-expected US consumer price inflation this week, has pushed back forecasts for the Bank of England’s first rate cut and the scale at which the rate base will fall this year.
UK GDP grew by 0.1% in February, while January growth was updated to 0.3%.
Current market prices now suggest that the Bank of England’s first cut will not come until August, while the expected scale of cuts in 2024 is less than 50 basis points, meaning the current base rate of 5.25 per percent will not fall below 4.75 percent this year. end.
Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: ‘The falls in construction activity also indicate a broader malaise that the UK has yet to shake off.
‘We have known for some time that major housebuilders have been building fewer homes as people wait for finances to improve before making major financial decisions.
“Overall, the rate of economic growth has slowed and many additional coals are still needed to fuel the UK’s engines.”
The National Institute for Economic and Social Research predicts that UK GDP growth will improve and remain weak in the first half of 2024.