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Construction sector GDP grows 4pc in Q3

The construction sector grew by 4 per cent between the end of June and the end of September, figures released by the Office for National Statistics have revealed.

This is a slowdown from the strong growth in the second quarter, which was revised to an increase of 9.5 per cent. Latest data from the ONS showed the whole economy grew by 0.8 per cent in the third quarter, a figure which is ahead of the forecasts of many economists.

Growth in the UK economy was driven by construction, business services and finance.

Between the end of September 2009 and the end of September 2010, the construction sector has increased in size by 11 per cent, according to ONS estimates. This underlines the strong recovery seen in the sector over the last year, which was fuelled by a surge in government spending.

The revision to the growth figures for the third quarter increases the pace of recovery the sector experienced. Previously growth had been estimated at 6.6 per cent.

Such strong growth in the third quarter comes as a surprise, given the strength of the recovery seen in Q2 but it could be caused by pace gathering on work announced earlier in the year.

Government spending cuts unveiled in last week’s CSR could take some time to kick in and the construction sector may experience more growth over the next few months.

While today’s GDP data is a positive outcome for the sector, many people in the industry argue that the figures do not reflect the situation on the ground.

UK Contractors Group director Stephen Ratcliffe said: “The industry is yet again surprised at these figures.  Construction has shown significant growth throughout the year – although partly fuelled by some fiscal stimulus from the last government, it is still well ahead of our expectations.”

“It also has to be set against a sharp fall in output last year of 12 per cent.  All our survey evidence is that contractors expect to see falling output over the next couple of years, especially since public sector investment is set to fall 30 per cent during the CSR period.”

While highlighting the positives to come from today’s growth numbers, being that output in the sector is just two per cent away from the all time high it achieved in the first quarter of 2008, RICS chief economist Simon Rubinsohn is not convinced that the output figures are totally accurate. He said: “Q3 GDP data released this morning provided another positive surprise (following the unexpectedly strong outturn for Q2).”

“A key driver of the recovery according to the official numbers is the construction sector where output rose by a further four per cent over the past three months and is now just two per cent away from its all time high (Q1 2008). Indeed, over the past two quarters construction output has been responsible for not far short of half of the increase in GDP.”

Mr Rubinsohn added: “Despite this, we are not entirely convinced of the strength of the recovery in the sector. Other official data relating to construction is sending more mixed signals. Housing starts remain way down on previous highs, meanwhile the construction orders numbers have fallen away sharply. In addition, most sentiment surveys of the sector including the RICS and CIPS reports are certainly not picking up such a robust performance.”