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UK economy dodges triple dip but construction plunges 2.5%

The UK has narrowly missed out on an unprecedented triple dip recession after official figures showed GDP grew 0.3 per cent in the first quarter of this year – but construction is back on the decline

UK economic output grew marginally in the last quarter following a 0.6 per cent increase in services and 0.2 per cent boost to production – according to the latest Office for National Statistics (ONS) estimates.

But construction dragged GDP down and was the worst performing sector, shrinking 2.5 per cent in the three months to April. Following a brief respite in 2012’s final quarter, the sector is again back into negative growth - a downward trend which began in mid-2011.

UK economic output by sector

Source: ONS

UK economic output by sector

There was some positive news for construction however, with growth for the fourth quarter of last year now predicted at 0.8 per cent compared to 0.3 per cent as previously estimated.

The 2.5 per cent decline contrasted a rosier picture drawn by RICS which claimed the quarter saw construction workloads increase more than at any time since the end of 2007.

The membership body reported a 10 per cent increase in surveyors workloads on the back of increased private housing work.

The ONS figures show the UK has remained broadly flat when viewed over the past 18 months, but is currently 0.4 per cent more active than it was two years ago.

The data shows GDP shrunk slightly less than thought at 0.3 per cent in the final quarter of 2012 – according to the latest Office for National Statistics (ONS) estimates.

The positive analysis comes after previous January estimates suggested a 0.4 per cent decrease in the three months to December 2012 and prompted experts to forecast a triple dip recession.

ONS played down the impact of the prolonged winter on most recent figures, suggesting retail may have reduced while electricity and gas consumption increased.

 

Comment

 

RICSchief economist Simon Rubinsohn
This year has continued in a challenging vein for large parts of the construction sector but not all. House builders in particular are reporting an improvement in activity which is clearly reflected in the RICS survey as well as their own trading statements. It is also worth noting that the responses we get QS practitioners tend to reflect activity at an early stage in the construction process so is consistent with a pick up in official data later this year.

The latest official data on new construction orders   has turned a little more positive and is broadly consistent with our own indicators. Some old schemes are progressing but there is still a strong regional and sector bias.

Our forecast is for construction output to grow 2 per cent over the whole of this year. This would clearly be a much better outturn than 2012 but would still leave the level of output near recent lows and would not signal very much of a turnaround in employment in the sector.

David Crosthwaite, economist at AECOM
The latest GDP (and components) release from the ONS should be no surprise to anyone involved in delivering construction projects in the UK. First quarter 2013 results suggest that construction output was 2.5 per cent lower than the final quarter of 2012, the only positive quarter for well over a year. Now the prolonged cold spell is likely to have had an impact on the results although the ONS largely dismiss this.

Year on year results are significantly more concerning with declines in output of close to 10 per cent. Unfortunately, unless there is some significant stimulus provided for the construction sector these declines look likely to continue unchecked, with the subsequent knock-on effects for the wider economy.

When compared to the wider manufacturing and services sectors the construction sector is rapidly becoming the basket case of UK plc and government intervention is needed urgently to address the decline.

Simon Rawlinson, head of strategic research at EC Harris
As a nation we can breathe a collective sigh of relief that the UK has avoided a third technical recession, but the reality remains that growth is exceptionally weak and there are currently very few levers available to drive confidence, investment and growth in the European Economies including the UK.  Construction will continue to experience very weak demand whilst these conditions remain, particularly with a very tough Public Spending Review coming up.  However, hopefully we will see the house building, industrial and perhaps commercial sectors start to see signs of recovery this year.

Roger FitzGerald, chair of ADP
From our own point of view we have seen a distinct and steady upturn since the beginning of last year, and that’s continuing in spite of what the overall economy is doing.    The dip in construction is really disappointing as this contributes to a general lack of confidence, which becomes self-perpetuating.  Besides, the country needs to be investing in schools, hospitals, and infrastructure to meet demand and to modernise facilities.  The shortage of primary school places is an example: there is a massive shortfall of places and we need to be designing and building new classrooms now.

Peter Morris of Peter Morris Architects
Over the past three months we have never been busier. Since we set up two years ago we have gone from strength to strength. Our success possibly lies in our core strategy and that is to keep our clients happy beyond their expectation. This is why we do architecture. All of our projects come from recommendations, with the exception of competitions. The happier our clients the busier we get.

Andrew Beharrell, executive director at Pollard Thomas Edwards
Pollard Thomas Edwards is experiencing a strong workload in 2013 and steady stream of new enquiries. Our work is based primarily on residential and mixed-use projects in London and the South East -  we do not work overseas. The shortage of housing is well documented, and the demand from UK and international buyers remains strong. The main constraint is land supply, exacerbated by our complex and unpredictable planning system.

Chris Williamson of Weston Williamson
The economy is patchy and some sectors including construction are still struggling and this slow growth is probably the best we can hope for in the short term. We have seen cause for optimism in some housing projects re-emerging as well as new opportunities in infrastructure.

Chris Roche RIBA, founder-director of 11.04 Architects
11.04 are experiencing unprecedented enquiries, arguably an improvement on our pre-2008  best, with 12 months of work already secured for 2013 – this is despite the government’s lack of investment in construction. Clients are fed up with austerity and want to enrich their lives through a better environment, both residential and commercial.

Simon Hatcher, director of Hatcher Prichard
We are finding 2013 to be extremely positive, the recession has forced us to use architectural design skills across a wider range of projects than are usually associated with the profession. Judging by our experience we expect the industry to return to positive growth in the very near future.

Dominic J Eaton, director at Stride Treglown Tektus

2013 has been very good so far, and certainly better than this time last year which is encouraging. Projects are definitely taking longer to get off the ground, but there is a growing confidence that although it may be taking longer, they will eventually happen. A noticeable change in our workload compared to say 3 to 4 years ago is that more projects are now getting onto site, or are certainly heading that way.

And this is great for the local economy because of the money that construction brings into an area. From local retail and sandwich shops to providing opportunities for local employment and apprenticeships etc. Also, if this building activity is associated with new homes, as most of my projects are, then there are also the benefits of growth within existing and established communities with the associated increased spending.    

I have also noticed that a number of projects, although not been shelved, had been dormant for a while, are now becoming active again with timescales for planning applications being discussed.

I suspect that part of the problem with getting schemes off the ground is the increased complexity of securing funding, which is something that I don’t get involved with and which I refer to as the ‘grown up stuff’? For our part, we often find that we have to go into a lot more detail with regards the feasibility study work so that the client is better informed with regards a sites potential and has the confidence that the full value of the site is realised before further commitment.

Fees are competitive but not ridiculous, and most clients still appreciate that they pay for what they get. Although we would never entertain cut throat fees which we have always considered a route to disaster.

Looking to the future, our order book is also looking encouraging for 2014 compared to previous years which is another good indicator for us that the state of the industry is looking up.     

I suppose on a slightly negative note, it appears to me that everyone is having to work a harder for less. There is also a lot more travelling involved which remind me of Norman Tebbitt’s ‘on your bike’ comment in the 90’s. You have to go to where the work is.

 

 

 

 

 

 

 

 

 

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