UK may avoid contraction

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British construction output grew in October, raising the prospect that the sector will boost gross domestic product in the fourth quarter and help the economy avoid a forecast contraction.

The annual decline in construction output slowed to 5.1 percent - the lowest since February and less than half of a 13.2 percent plunge in September.

It rose 8.3 percent on the month, non-seasonally adjusted data from the Office for National Statistics showed. Between August and October, output was 0.7 percent higher than in the three months through July.

“(This) opens the door to the construction sector making a very rare recent positive contribution to GDP in the fourth quarter,” said Howard Archer, economist at IHS Global Insight.

“While any growth in the construction sector would probably not be enough to stop a renewed dip in GDP in the fourth quarter, it would help to limit any decline.”

Last week, official British government forecasts pointed to a fourth quarter contraction in GDP, and economists polled by Reuters earlier this week saw a 0.1 percent decline.

Alan Clarke, economist at Scotiabank, was more upbeat, saying that Friday's data suggested GDP could expand by 0.3 percent in the fourth quarter, even if Britain's dominant services sector posted flat output.

In another sign of a fledgling recovery in the sector, the ONS reported earlier that construction orders rose 5.4 percent between July and September compared to the previous quarter.

Although construction accounts for less than 7 percent of Britain's national output, weak activity in the sector was the main drag on the economy this year, helping tip the country into its second recession since the financial crisis.

The government has introduced incentives to kick-start construction, such as investment guarantees to reduce the risk of private-sector involvement in home-building and infrastructure projects.

Despite the recent improvement, construction output was still 9.7 percent lower between August and October than in the same three months in 2011, with growth recorded only in the public housing repair and maintenance sector. - Reuters


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