This article is more than 5 years old

This article is more than 5 years old

A sharp fall in new housebuilding in August reversed a long period of expansion in the construction industry, according to official figures.

Output fell for the first time in 18 months as infrastructure spending and building maintenance, which have both remained weak all year, also contracted.

The figures will disappoint the Treasury, which has championed housebuilding as a way out of the current housing crisis. The fall in infrastructure construction will also prove a blow to George Osborne, who has repeatedly said new transport and digital infrastructure is necessary for sustainable growth.

Output fell 3.9% compared with July, said the Office for National Statistics (ONS), dragged down by a 4.8% decline in all types of new work. Only a small rise in public housing offset falls in infrastructure of 6.5%, a 4.9% decline in private industrial and private housing’s 5.5% contraction.

Alan Clarke, head of European fixed-income strategy at Scotiabank, said: “UK construction output got pummelled into the ground in August.” He said the figures would dent third-quarter GDP calculations, though probably by only 0.1%.

However, the ONS figures contrast with other surveys showing a consistent expansion through the summer. The Markit/CIPS construction reading for August was 64.2, where a figure above 50 indicates expansion. This suggests construction is still booming.

Clarke said the rival surveys painted a confusing picture, especially when the ONS data showed that the year-on-year rate of growth was negative in August at -0.3%.

Chris Williamson, chief economist at Markit, dismissed the ONS data as “wholly inaccurate” and accused the government’s independent statistician of presenting a misleading picture of the industry.

He said: “We suspect this is a wholly inaccurate representation of the sector’s health, and that construction in fact continues to boom.” He said revisions by the ONS to comply with new European data rules had skewed the results for August.

“The signals about the health of the sector and the economy as a whole can be utterly misleading as a result. Last month, for example, the ONS reported that construction output had been flat in July, continuing a period of stagnation seen during the second quarter.

“However, the ONS now estimates that output rose by an impressive 1.9% in July after a substantial gain of 0.7% in the second quarter.

Williamson said even these revisions to earlier months understated the pace of expansion so far this year, and indicated that growth accelerated further in the third quarter.

“The Markit/CIPS Construction PMI showed the sector growing at its fastest rate for 17 years in the three months to September,” he said.

Figures showing that the UK’s trade balance closed in August proved less controversial, though equally disappointing. The deficit of trade in goods and services for August was £1.9bn, compared with £3.1bn in the previous month.

But a much-hoped-for boom in exports again failed to materialise and the improvement was largely the result of a decline in imports – mostly aircraft parts that accounted for a boost to imports in July.

Goods exports fell £0.7bn, or 2.8%, though excluding oil the fall was a more modest 0.4%. The UK balance of trade in goods has declined sharply over the last 18 years from -0.1% to -10%. A rise in goods exports in the year following the financial crash, following a 25% decline in sterling, has reversed in subsequent years.

Williamson said: “The accelerating downturn in goods exports is a major concern, and one that is likely to encourage policymakers to hold off from raising interest rates. Goods exports were down 3.1% in the three months to August, or 2.3% if oil is excluded. These were the largest such declines seen since March. Goods exports are running some 8.8% down on a year ago.

“The weak export data follows news from the PMI surveys that manufacturing growth has slowed sharply in recent months, and is acting as an increasing drag on the economy in the second half of the year,” he said.