Construction output in surprise dip

Updated: 

Construction

Construction output suffered a surprise fall in May as new work on private-sector housing dried up, suggesting the country's rapid economic growth over the past year might have lost momentum.

Output dropped by 1.1% in May after rising by 1.2% in April, causing the annual rate of growth to slow to a six-month low of 3.5%, according to the Office for National Statistics (ONS).

The monthly fall was due to a drop in new private commercial work as well as public projects, with new private housing work flat on the month.

While monthly construction figures are notoriously volatile these figures taken with the unexpected 0.7% fall in industrial production data and the 1.3% fall in manufacturing output this week from the ONS bring to an end an extended run of positive news about the economy.

IHS Global Insight chief UK economist Howard Archer said this recent data made it "highly questionable" that first quarter GDP growth of 0.8% would be matched in the second quarter of the year.

Markit chief economist Chris Williamson added: "The weakness of these data alongside disappointing manufacturing output data for May suggest that policymakers will be encouraged to err on the side of caution about hiking interest rates too early in what looks to be a still-fragile recovery."

The less volatile quarterly measure showed construction output fell 0.8% in the three months to May, its biggest fall since the three months to October 2012.

The last time private-sector housing was so weak - excluding a weather-related hit in February - was in November last year.

But other economic indicators do point to healthy growth such as unemployment, which slid to 6.6%, the lowest level in more than five years in April.

Mr Williamson added: "The data leaves us scratching our heads, as surveys and anecdotal evidence from the sector point to booming business conditions."

Figures for the dominant service sector, which accounts for around three-quarters of UK economic activity, will be released alongside the official second-quarter GDP growth figures at the end of July.