First quarter of the year saw output fall less than first thought, but confidence is still low

The latest snapshot of the UK economy reveals construction fared slightly better in the first quarter of the year than previously thought although it still posted a sharp fall.

Fresh government figures for UK GDP between January and March of this year revealed construction output fell 3.4% on the quarter rather than the 4% that was initially forecast.

Many industry observers believe the official figures are consistently underestimating construction output, particularly when set against recent bullish announcements from house builders and major contractors.

But many in the City believe sector confidence has fallen sharply after an initial period at the start of the year when companies and investors were relatively upbeat about prospects over the next year.

Andy Brown, analyst with Panmure, said: “Either way, the output figures are not a great number. There’s more nervousness in the market from an investment point of view than earlier in the year. If you look at the share prices of Balfour Beatty and Morgan Sindall for example, they’re just drifting along.

“They along with Kier have good order books but investors aren’t interested at the moment because I think they see that it’s going to be a very slow grind out of where we are at the moment.”

That view was echoed by Robert Hardy at KBC Peel Hunt. He said: “From a fairly positive attitude at the start of this year it’s quite clear now that when you speak to contractors they are a good deal more uncertain about the future. It’s nothing specific, but they are more downbeat.”

Kevin Cammack, analyst at Cenkos Securities, added: “The recovery in the private sector is simply not emphatic enough, and while house builders opened new sites and increased production earlier in the year there hasn’t been much follow through.

“House building has bottomed out of course, but volumes haven’t really picked up.”