Page last updated at 12:10 GMT, Friday, 5 June 2009 13:10 UK

UK economy is 'shrinking faster'

Olympic construction site
Worse than expected construction figures could hit growth

Fresh figures on the UK construction industry could mean the UK economy shrank more than first thought in the first three months of 2009.

The Office for National Statistics said that construction output fell by 9% in the first quarter, much more than an initial estimate of 2.4%

ONS officials said "all things being equal", this could suggest the economy shrank 2.2% in the first quarter.

Earlier estimates indicated that the UK economy contracted 1.9%.

This was the worst quarterly figure since 1979.

"The plunge in construction output has serious negative repercussions when looking at the overall performance of the economy in the first quarter," said Howard Archer, an economist at Global Insight.

The ONS will publish a revised figure for GDP in late June.

Inflation cooling

The fall in construction was much worse than thought.

Meanwhile, the cost of goods leaving factories and the prices of materials bought by firms both fell in the year to May, hinting inflation is continuing to cool.

Output prices fell 0.3% in May from a year earlier, the biggest annual fall since June 2002, the Office for National Statistics said.

Input costs dropped 9.4% in May from a year earlier as the price of oil and imported metals fell at a record pace.

However, analysts said the recent rise in oil prices could hurt producers.

"May's UK producer prices confirm that cost pressures in the manufacturing sector are continuing to ease rapidly," said Jonathan Loynes, chief European economist at Capital Economics.

He said that this easing should also be felt in the consumer price index.

However, he added that the rally in crude oil prices, which are now close to $70 a barrel, could hurt manufacturers.

Both input and output prices rose 0.4% in May from April.

"The recent renewed rise in oil prices, if sustained, obviously raises a few concerns regarding the future path of producers' costs," Mr Loynes said.

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