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Construction in recession after largest output fall in five years

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Construction has slid into recession after the largest quarterly fall in output for five years, according to the Office for National Statistics

Output in construction fell 0.7 per cent in the three months to September, which represented the largest quarterly fall since the third quarter of 2012 and follows a 0.5 per cent decline in the second quarter of 2017. 

Two quarters of falling output puts the industry in a technical recession. However, reports the AJ’s sister title Construction News, output still remains above the pre-financial crisis peak. 

The figures are based on forecasts and responses to the ONS business survey for September. 

Earlier this month the Markit/CIPS purchasing managers’ index, which measures construction activity, posted its first contraction in 13 months after warning that Brexit uncertainty was slowing new projects.

ONS figures based on the three months to the end of August revealed private commercial new work was the largest drag for construction, falling 2.9 per cent. 

New housing, currently the largest sector of work by value, was up 0.4 per cent over the period, but infrastructure output fell 0.2 per cent. 

However, CPA economics director Noble Francis warned against an overreaction to the new data.

’The big headlines will be ‘recession’, as it is the second consecutive quarter of contraction for construction, but it is from a relative high point above the pre-crisis peak,’ he said. 

Looking ahead though, Francis suggested more pain could be in store for the industry.

‘Some contractors won’t recognise the declines because private housebuilders are still increasing supply, as 40 per cent of their sales are subsidised by Help to Buy,’ he said.

’In addition, contractors working on major infrastructure projects are still enjoying growth, although there are still concerns about cost overruns and delays.

’But 85 per cent of construction isn’t major projects and as schemes agreed before the referendum finish, particularly in the commercial sector, there is not enough new work to fill the void.’ 

Overall UK GDP for the third quarter was up 0.4 per cent, following an increase of 0.3 per cent in Q2, with strong performance in services and manufacturing driving growth.

 

 

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