UK construction slump threatens economic recovery as GDP data due

Economists warn that modest gains achieved by the UK economy during the first half of this year are likely to be erased following a significant downturn in the construction sector. A recent survey tracked by Bloomberg suggests gross domestic product contracted by 0.1 per cent in June, effectively undoing previous improvements. Pantheon Macroeconomics analysts indicate that sharp declines in building activity will drag overall growth back while services and production output stagnate. Official figures for June are scheduled to be released on Thursday.

The construction industry has struggled for some time with consistent job cuts reported by firms. Although recent official data showed moderate growth with a 1.6 per cent increase in output over the three months ending May, projections suggest this sector alone may have fallen by as much as 0.7 per cent during June. Within services, accommodation and food sectors are also expected to weigh on economic performance.

Despite these challenges, higher spending driven by World Cup events could offer a positive surprise to analysts. Deutsche Bank economists note that warm weather likely provided a boost to clothing retailers, pubs and art galleries in June, preventing a sharper fall across the broader economy. Consequently, new data may present relatively positive news compared to earlier forecasts.

In the first quarter of this year, growth reached 0.6 per cent, surpassing analyst expectations for just around 0.2 per cent projected by think tanks and City economists including Barclays Jack Meaning. Current estimates now place second half growth at 0.4 per cent, alleviating fears that geopolitical tensions involving Iran would severely damage business prospects.

Sanjay Raja of Deutsche Bank stated household consumption will provide a modest boost in the second quarter as retail sales exceeded expectations. Sunny weather and England’s World Cup campaign helped maintain momentum despite subdued business investment. The bank expects contraction between April and June compared to earlier growth, yet noted a steady flow of announced projects tied to data centres, clean energy and advanced manufacturing.

Raja added that government spending likely supported the economy over this period while large strategic investments continued amid corporate hesitation due to uncertainty and soft demand. Barclays economist Meaning suggested previous predictions relied too heavily on S&P Global’s purchasing managers index which recently failed to capture true growth changes shown in official releases.