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UK May construction drop fades hopes of end to recession

LONDON - British firms built less in May than a year earlier even with an extra working day, official data showed on Friday, further denting hopes that the struggling economy emerged from recession in the second quarter.

The country fell back into its second recession in four years at the turn of the year and a recent slew of gloomy economic data has raised fears that the downturn extended into the April-June period.

Construction output dropped 6.3 percent in May on a non-seasonably adjusted basis, the Office for National Statistics said, warning that caution should be taken when interpreting the monthly movements involving May and June 2012.

Firms failed to benefit from a May public holiday being postponed until June, when another day was added to celebrate the Queen’s Diamond Jubilee.

“This (data) supports our view that the economy remained in recession in the second quarter,” said Vicky Redwood at Capital Economics.

“In theory there should have been a boost to those numbers from the extra day, so the underlying trend is even worse than those numbers point to.”

Between March and May construction output fell 7.4 percent compared to the same three months in 2011, the ONS said. New public housing work plunged by 22.9 percent, while volumes of new public non-housing excluding infrastructure and new infrastructure fell by almost as much.

Official data earlier this week showed manufacturers got a lift in May from the postponed holiday, a move which then boosted retail sales in June according to a survey.

Construction activity fell at its fastest pace in 2-1/2 years in June, a Purchasing Managers’ Survey showed earlier this month, and sister surveys found that the manufacturing sector contracted for the second straight month while the dominant service sector endured one of its worst months in the past three years.

Fund hope

The economy has been basically flat for two years and is not showing a great deal of signs of impending recovery, Bank of England Governor Mervyn King said earlier this week.

Economists in a Reuters poll see tepid growth ahead at best, with only a small bounce from London’s hosting of the Olympic Games, leading to calls for the government and BoE to act.

The government’s hands are tied by its commitment to bring down the country’s budget deficit, but the central bank last week announced a 50 billion pounds top-up to its asset purchase programme in an effort to boost the economy and on Friday released details of its ‘funding for lending’ programme.

Under the scheme around 80 billion pounds ($123 billion)of loans will be made more accessible and cheaper for households and businesses, as part of efforts to lift the economy out of recession.

Finance minister George Osborne and Governor King jointly announced the scheme last month, under which the BoE will give banks cheap access to finance if they then lend in turn to cash-strapped businesses and home-buyers.

“I’d question the extent to which the lack of bank finance is really beginning to make its presence felt because the construction sector relies on finance to act as life blood for getting buildings off the ground,” said Peter Dixon, economist at Commerzbank.