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New government figures show drop in construction output

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Construction output in the UK fell by 1.1 per cent over the last quarter (July-September), according to new data from the Office for National Statistics

Output dropped by 1.1 per cent in the third quarter (Q3) of this year compared with the second quarter (Q2:April-June) - a slight upwards revision on the ONS’s earlier October estimate of a 1.4 per cent fall.

According to the AJ’s sister title Construction News, this is the second consecutive quarter of falling output in construction, following on from a dip of 0.1 per cent in Q2.

Private industrial work dipped 1.2 per cent quarter-on-quarter, while private commercial also fell by 0.2 per cent.

However, all new work was still 0.3 per cent higher in Q3 than a quarter earlier, boosted by growth in infrastructure (1.2 per cent) and public other new work (0.9 per cent).

According to CECA’s latest workloads trends survey, civil engineering and infrastructure contractors have seen an upturn in gas, communications and enabling works sectors during the quarter.

Year-on-year, all new work was also 2 per cent higher in Q3 2016 than it was in the same period a year earlier, with private housing (10.8 per cent) growing at the fastest rate.

Output in the commercial sector was also 4.5 per cent higher year-on-year, although private industrial (-12.3 per cent) reported double-digit declines.

Key clients, including Derwent and Great Portland Estates, have said that they will not slow down their current office pipelines and AXA provided a further boost to the sector when it inked deals for PLP’s 22 Bishopsgate tower last month.

On a month-on-month basis, output was up by 0.3 per cent in September compared with August, with public housing (5.5 per cent) and private industrial (4.3 per cent) posting the largest increases.

Private housing posted its third consecutive month of declining output

However, private housing posted its third consecutive month of declining output.

The official figures are at odds with some industry surveys, which point to increased activity in Q3. Examples include the RICS Construction Market Survey for Q3, which showed that a net balance of 19 per cent of surveyors had seen workloads rise quarter-on-quarter.

The Markit/CIPS Construction PMI for October also suggested that output was rising at its fastest rate since March.

Comment

Rebecca Larkin, senior economist at the Construction Products Association
’While today’s figures show a contraction in construction output, surveys across the industry have painted a more positive picture of continued increases in construction activity during the quarter. This suggests that official data are likely to be revised up further as more data becomes available.

Certainly, the ONS data show that new construction work remains the primary driver of activity, rising by 0.3% during the quarter. 

’Despite the contraction in Q3, the rise in new orders in Q2, along with broadly positive expectations expressed in industry surveys, points to a favourable performance over the rest of the year. For the year to date, overall construction output remains 0.6 per cent higher than a year ago.’

Michael Thirkettle, chief executive of McBains Cooper
’These figures are an obvious continuation of post-Brexit uncertainty, but we remain optimistic about the long-term picture.  The weak pound is also a continuing concern as it means increased costs of materials, although this may be balanced out by increased Asian and US investment in construction projects in the UK.

’However, the industry will be looking for the Chancellor’s Autumn Statement later this month to provide a boost to the sector, as well as giving a kick-start to the housebuilding programme.

’These figures are an obvious continuation of post-Brexit uncertainty’

’Currently, we are building nowhere near enough homes to meet the government’s target of a million new homes by 2020 and so more emphasis needs to be placed on expanding local authority housebuilding and the build-to-rent sectors.

‘Brexit also threatens to choke the supply of skilled migrant labour from the EU on which the industry is heavily reliant, so skills shortages also need to be addressed.’

Mark Robinson, chief executive Scape Group 
’The Brexit damage to big projects is very clear from today’s data – new infrastructure work was down a huge 7.7 per cent in Q3 compared to the same time last year, as uncertainty before and after the EU vote halted decision-making and put the brakes on activity. However things may now finally be looking up. The Prime Minister is clear about the timetable for Brexit, despite the legal hiccups this month, and the government has made lots of very positive noises about its pipeline for both big and small public infrastructure projects. Investment in infrastructure is a ‘no-brainer’ for any economy’s long-term growth, and even Donald Trump has managed to calm US markets by getting on the infrastructure bandwagon. The autumn statement later this month could mark a turning point for the UK as the Chancellor’s plans for investment in infrastructure become clearer.

 ’The Brexit damage to big projects is very clear from today’s data’

’The government must now seize the opportunity to put its money where its mouth is - it is time to provide the big boost investment in roads, rail, utilities and housing. Investment in the Northern Powerhouse and the Midlands Engine will help to further increase confidence, and to get the industry moving. But we must also tackle the deepening skills crisis to ensure that we have enough workers to deliver these projects, while also providing jobs and high quality training for young people.’

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