Gloomy figures for building sector

Britain's slump back into recession was worse than first thought after statisticians slashed their estimate for construction output today.

The gloomy building sector figures from the Office for National Statistics (ONS) will have a negative impact of around 0.1 per cent on GDP in the first quarter, which means last month's 0.2 per cent contraction could become 0.3 per cent.

While revised data from other parts of the economy will have a bearing on the final result, economists said the update shattered hopes that official figures will be revised back in line with other more optimistic surveys.

The ONS said the total volume of construction output fell by 4.8 per cent compared with the previous quarter, down from the 3 per cent decline previously thought. Infrastructure showed the largest decrease at 15.9 per cent.

The extent of the construction slump has surprised the City, while the Bank of England said the contrast with other industry figures was perplexing.

Markit chief economist Chris Williamson said: "If these official data are correct, it paints a very worrying picture of the health of the UK economy, especially in relation to infrastructure investment.

"However, our belief is that surveys give a better guide to the underlying state of the economy and that, although far from enjoying a period of robust and sustainable growth, the country is managing to see some expansion after the weak patch seen late last year."

The volume of all new work in the construction sector fell by 6.9 per cent, while repair and maintenance declined by 0.4 per cent on the previous quarter.

Meanwhile, separate figures showed that firms are passing on a bigger than expected proportion of past increases in their costs to customers.

Factory-gate prices rose by 0.7 per cent month on month in April and have now risen by 2.3 per cent in the first four months of 2012.

However, Samuel Tombs, of Capital Economics, said further increases in output prices were less likely as input prices fell by 1.5 per cent month on month.

He added: "If oil prices hold steady at their current level, then input prices should fall by a similar amount in May too."

Inflation rose unexpectedly to 3.5 per cent in March, fuelling worries that it will take longer than expected to fall back to the Government's 2 per cent target.

The Bank of England held back from more quantitative easing yesterday amid signs that it is worried about the impact such a move would have on inflation.

PA