February construction picks up but likely to contract Q1

LONDON (Reuters) - British construction output showed a tentative recovery in February but will need to record stellar growth in March to avoid registering a further quarter of contraction.

Despite accounting for less than 7 percent of Britain's economy, weak construction output was the main drag on growth during the first half of last year, helping to push the country back into recession.

It remains touch-and-go whether Britain's economy as a whole will record any growth in the first quarter. The economy contracted at the end of 2012 and another negative reading will prompt "triple-dip recession" headlines embarrassing for the government.

Non seasonally-adjusted figures from the Office for National Statistics on Friday showed that construction output was 7.0 percent lower in February than a year ago but 5.5 percent higher than in January. However, the bounce-back is smaller than typically seen at this time of year.

"The month-on-month increase in February sounds encouraging but still leaves output well below the level seen before the winter weather set in December," said Brian Hilliard, economist at Societe Generale.

With construction likely to subtract from first-quarter GDP, Hilliard said his best guess was for flat to 0.1 percent growth in the economy as a whole.

Construction output is highly responsive to the economic cycle and has fallen by 16.5 percent when comparing the last quarter of 2012 with the first quarter of 2008, just before a steep recession caused by the financial crisis.

Activity so far this year has been hit by an unusually severe and prolonged winter, but there are signs that public sector infrastructure cuts are also having an impact.

The Markit/CIPS construction index shows the sector contracted for the fifth month in a row in March. The only bright spot has been house-building where a firmer property market and government home-buying initiatives have provided some cheer.

"Irrespective of whether we get 0.1 percent growth in the first quarter or a 0.1 percent contraction, it's the same message: the UK economy is hardly growing at all," said Alan Clarke, strategist at Scotiabank.

(Reporting by Christina Fincher; editing by Stephen Nisbet)

Source: http://news.yahoo.com/uk-construction-output-falls-annual-7-0-percent-091347926--sector.html

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