UK construction sector contracts for ninth month in a row

An unexpected decline in housebuilding meant the UK construction industry contracted for the ninth month in a row in January.

The number of new homes built dropped 9% compared with the previous month, while public building fell 8.9% and construction of commercial property such as offices and shops declined by 3.9%.

Office and factory building was also hit as construction output, worsened by the collapse of the building contractor Carillion, decreased by 3.9% compared with the previous January, representing the biggest annual decline since March 2013.

Figures from the Office for National Statistics also showed a rise in the cost of imports, mainly higher priced fuel, led to the trade deficit increasing from £11.8bn to £12.3bn.

There was better news from the manufacturing industry, which extended its period of increased output to nine months in a row in January, the longest run of expansion since records began in 1968.

But analysts said its weaker pace of growth shown in the official figures, which echoed industry surveys, was a worry when the rest of the world was experiencing a boom in manufacturing.

Alan Clarke, a UK economist at Scotia Bank, described the 0.1% rise in UK manufacturing output in the first month of the year as “dreary” and “below the sector’s batting average”.

Dennis de Jong, the managing director at currency dealer UFX.com, said: “The big worry for Theresa May and her cabinet will be whether this slight slowdown represents the tip of the iceberg of an economy that is struggling to satisfy demand.”

Jeremy Cook, the chief economist at currency dealer WorldFirst, said the most important ONS figure was the UK’s trade deficit, which had worsened and looked vulnerable to an escalation of protectionist trade barriers.

“The deficit continues to expand despite the pound being 14% cheaper than its trade weighted average over the past 20 years,” he said.

The trade deficit in January widened only marginally with the European Union compared with the rest of the world, which was the source of imports of fuel at higher prices and aircraft.

Lee Hopley, the chief economist at the UK manufacturers’ organisation, EEF, said there was evidence that capital goods exporters, such as mechanical equipment and electronics firms, had a solid start to 2018.

But their success in selling to the EU compared with the rest of the world showed the bloc’s dominant role in bolstering goods exports with growth outpacing that to non-EU customers. She also warned against a tit-for-tat trade war that would harm the UK more than most countries.

“With overseas demand such an important contributor to the current positive outlook for manufacturing, risks of increasing protectionism would surely put the brakes on growth at a time when the economy is more reliant on a good performance from externally facing industries,” Hopley said.