Construction output drags down GDP growth

Published: 10 January 2018 - FRH

 ONS figures published today show that construction output in November rose by 0.4% in both monthly and annual terms. However, monthly data are volatile and on a rolling three-month basis, output declined 2.0%. This was the largest fall since August 2012.

Rebecca Larkin, Senior Economist at the Construction Products Association, commented: “Today’s data confirm what has been signalled by early indicators and industry surveys – that construction ended 2017 on a weak note. Past falls in new orders, particularly in the commercial and public non-housing sectors, now appear to filtering through into lower volumes of work. On a three-month basis, commercial output fell 5.4%.

“It now looks impossible that the industry avoided a full quarter of contraction in Q4, with the £30 billion private housing sector contributing the only positive story. Therefore, construction is set to have caused a drag on overall UK economic growth during the quarter.

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, said: “Britain’s housebuilding boom is no longer providing a ‘get out of jail’ card for the struggling construction industry. At best it’s sugaring an increasingly bitter pill.

“Both commercial property and infrastructure construction suffered a steady loss of momentum during 2017, as investors have continued concerns over the future course of the economy. 

 

But the seemingly irrepressible buoyancy of the residential sector suggests that the decline in industrial and infrastructure work is likely to be sentiment-led, rather than due to any fundamental weakness in the market.

“Housebuilders continue to bet on future demand from would-be homeowners, and on the front line we’re seeing very brisk residential activity – especially among developers converting office buildings into residential units.

“Not for nothing did last week’s PMI survey reveal that housebuilders have now clocked 16 consecutive months of rising output.

“Looking ahead there are other grounds for optimism. Rising material costs continue to slice into margins, but construction firms’ order books are filling up well.

“The unresolved question is how much longer the mothballing of commercial and infrastructure projects will continue.

“Few industries are more susceptible to shifts in investor confidence than construction, and if the coming months fail to deliver greater clarity on what the real impact of Brexit might be, the commercial and infrastructure sectors will stagnate further.”

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