Not so sunny for the UK Economy

As much of the country basks in a long-overdue heatwave, the outlook for the UK economy is somewhat cooler. Second quarter GDP figures released on Wednesday defied even the gloomiest forecasters by revealing a drop in output of 0.7%, as against the consensus forecast of a 0.2% dip. This represents the third quarterly contraction in a row.

Data for this quarter was always going to be skewed by the effect of the extra bank holiday for the Queen’s Jubilee, but what nobody had been able to factor in was the effect of the extreme weather conditions experienced across country during June and much of July. June 2012 is now officially the wettest June since records began, so the ONS have been quick to point out that this, together with the effect of the Jubilee, casts far greater doubt than normal over these figures, meaning the likelihood of a later revision is highly probable. However, whether that revision will be up or down is impossible to say.

Yet again, blame for the fall was directed firmly at the construction sector, which posted a drop in output of -5.2%, as the effects were felt of infrastructure projects cancelled under the current Government Spending Round and an ongoing lack of demand from the housing market.

Stephen Radcliffe, director of UKCG offered a robust defence on behalf of the industry when interviewed on R4. He was quick to point out that what these figures don’t demonstrate is the size of the UK construction industry -  £120bn. Furthermore, the multiplier effect from construction is immense – every £1 spent on construction creates £2.84 worth of economic stimulus within the wider economy, of which 90p remains within the UK, to create more jobs and further growth. For this reason, Radcliffe urged the government to be bolder in their approach. Whilst welcoming initiatives such as the Construction Pipeline and the access to finance scheme announced last week, he feared they lack the necessary scale to inject meaningful growth into the UK economy. He called for a concerted effort to speed up those infrastructure projects which have already been committed to and for efforts to be made to even out the patchy nature of construction activity across the UK.

Whilst our sector may feel like the whipping boy for the nation’s economic woes, it is important to remember that it is also our sector which can lift the UK back into growth. It is therefore crucial that the government is committed and bold in its approach to secure the recovery we are all anticipating.