Construction declines for two quarters

Richard Furlong - City Surveys Group

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Published: 12th December 2017

This Article was Written by: Richard Furlong - City Surveys Group

  


Recent data released by the Office for National Statistics (ONS) show that construction output decreased by 0.9% in the third quarter (Q3) of this year.

For the first time since 2012, there have been two consecutive quarters of decline since Q3 2012.

With the trade gap in the construction industry shrinking by £700 million to £2.75 billion over the period. The sector is dangerously close to slipping into recession as the UK economy struggles to fire on all cylinders.

While the UK’s construction sector has enjoyed a strong run for almost a quarter of a century. This result is even worse than October’s original estimate of a 0.7% decline, which follows a 0.5% fall in output recorded in Q2 (April-June).

The decline has been attributed to a mixture of factors. In particular, repair and maintenance contracts have fallen by 1.4% and all new work has fallen to 0.7%. Economists have pointed to a drop in demand for new commercial building work as one of the main reasons for the fall in new work contracts.

In monetary figures, construction output fell by £361 million in September. A £236 million decrease in private commercial new work and a fall of £165 million from total repairs and maintenance to housing.

Construction output peaked in January 2017 and during this period output reached a level that was 29% higher than the lowest point in recent times (January 2013). Despite continuing to fall in September 2017, construction output remained 25.7% above the January 2013 figures.

On a more positive note, new work in housing has seen the best results. With private housing growing to £138 million and public housing expanding by £65 million. With the UK facing a critical housing shortage this is well short of where it needs to be but shows some light at the end of the tunnel.

Senior economist at the Construction Products Association (CPA), Rebecca Larkin, said: “At a headline level, today’s data shouts ‘construction recession’, marked by two consecutive quarters of falling output. However, output remains at relatively high levels – 1.1% higher than a year ago and 7.1% higher than 2015 Q3.

“There is also a clear variation in performance by sector, as highlighted in the CPA’s forecasts. Private housing output rose 1.8% to a record high during the quarter, with demand and confidence sustained by the Help to Buy equity loan. The £10 billion extra funding for the policy announced last month will maintain impetus in house building, with greater certainty over affordable rent-setting also supporting building by housing associations.”

She conceded: “Nevertheless, areas of weakness include private commercial, where new orders have fallen for three quarters and signal a lack of offices and retail projects to replace those now coming to an end. This is echoed in the public non-housing sector, which is suffering from lower volumes of work on schools and a dearth of new large hospitals projects.”

IHS Markit’s Chief Business Economist, Chris Williamson, said the data pointed to a ‘multi-speed economy’. This is referring to the buoyant quarter experienced by both industrial production and manufacturing sectors in contrast to construction.

The industrial sector in particular is experiencing a period of sustained growth with figures showing a sixth consecutive month of growth. A phenomenon not experienced for 23 years.

He said: “According to data from the Office for National Statistics, both industrial production and manufacturing output surged 0.7% in September, notching up the best performance so far this year.

“The overall picture is therefore one of the economy continuing to show relatively resilient growth, albeit with an undercurrent of heightened uncertainty surrounding Brexit posing downside risks to economic activity in coming months, especially business investment.”


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