UK construction data offers economy glimmer of hope

The UK construction sector improved significantly in October, offering a glimmer of hope that the economy could grow in the final quarter of the year.

Construction output climbed by 8.3% in October – compared with a drop of 2.8% in September – driven by infrastructure output and private housebuilding. Data from the Office for National Statistics shows the sector has still shrunk by 5% in the year to October, but that compares with a 13% decline in the year to September.

Analysts said October's figures appeared to show a truer picture of the state of the sector than earlier estimates. Philip Shaw of Investec Economics said: "They are more in line with our perception of what is going on in the sector. We had a broad view that construction has been under-recorded. Compared with what we pencilled in, the October numbers suggest the figures will be considerably stronger than they have over the first three quarters of the year so far."

Construction figures are notoriously difficult to estimate because of the nature of the sector, which covers everything from one-man operations to multibillion-pound companies. It is also hard to gauge how much of a job is work in progress, as huge construction projects can take years to complete. Shaw said: "You've got a lot of small traders you may or may not capture. The phenomenon of work in progress you have to measure as well."

Economists said the improvement could help lift GDP in the fourth quarter. Howard Archer of IHS Global Insight said: "If the construction sector can make any positive contribution to GDP in the fourth quarter, it really would seem a bonus. While any growth in the construction sector would probably not be enough to stop a renewed dip in GDP in the fourth quarter, it would help to limit any decline."

There have been concerns that the UK economy will contract in the last three months of the year, but some recent economic news has pointed to a more positive outlook. Data out on Friday showed new car sales in the UK had shot up by 11.3% in the 12 months to November, compared with a 10.3% slump in European sales. Earlier this week, figures showedunemployment in Britain recorded its sharpest quarterly drop in more than a decade in the late summer and early autumn as strong jobs growth by private companies more than offset labour shedding in the public sector. Meanwhile, the monthly snapshot of the property marketfrom the Royal Institution of Chartered Surveyors suggested house prices were stabilising and the number of sales continues to edge up.