GB construction stumbles

Construction output in Great Britain is estimated to have fallen by 1.1% in May compared to the month before – and both new work, and repair and maintenance fell by that amount.

These figures, from the Office for National Statistics (ONS), follow April statistics which showed a rise of 1.2%.

At the same time, the UK’s Construction Products Association’s latest State of Trade Survey reports strong growth in sales of construction products in the second quarter.

It said that firms were showing increasing signs of optimism going forward and, for the first time in five years, product manufacturers reported increases in levels of capital investment across all areas of their business.

The ONS defines output as the amount charged by construction companies to customers for value of work produced during the reporting period, excluding VAT and payments to sub-contractors.

In its May figures for all new work, the largest contribution to the fall came from private commercial work and public other new work. New work public housing and private industrial work increased, but because of the relatively small size of these work types, the increases did little to offset the falls elsewhere.

Compared with May 2013, output in the construction industry increased by 3.5% in May 2014. All new work increased 3.7%, and repair and maintenance was up 3.1%.

There were notable year-on-year falls in infrastructure, public other new work and private commercial, the ONS said.

Housing new work provided the largest contribution to the increase in all new work compared with May 2013, with both public and private housing seeing substantial increases of 29.3% and 16.8% respectively. This resulted in all new housing increasing by 19.4%. Private industrial new work also increased compared with 2013.

Cost pressures

The Construction Products Association’s State of Trade Survey found that following on from the first quarter, both heavy side and light side firms reported increasing cost pressures stemming from wages and salaries. Whereas lack of demand remained a key concern for light side manufacturers, data from heavy side firms suggested that capacity pressures might be emerging.

Kallum Pickering, senior economist at the Construction Products Association, said,
“These results confirm that the construction products industry is firmly on the path of recovery.

“All firms reported that sales increased compared with the second quarter of last year and, looking forward, no firms expect sales to fall over the coming year. These findings fall in line with the recent broadening of growth across private construction.”

He said there were clear signals that firms were looking to capitalise on the positive growth outlook.

“Both heavy side and light side firms reported that capital investment increased across all areas of business, and investment intentions over the next 12 months were equally positive,” said Pickering.

“Product manufacturers increased headcount for a fourth consecutive quarter, and while this is positive news, data on cost inflation suggests that wages are beginning to make a significant contribution to rising costs of firms.”

Reality check

The reversal of April’s growth seen in the ONS figures is described as being “a timely reality check for the construction industry” by Steve McGuckin, UK managing director of the global construction consultancy Turner & Townsend.

He said, "Order books and levels of confidence are both strong, but despite the great progress made in the past year, no one should take the momentum for granted.

"Month-on-month figures are notoriously volatile and should be taken with a healthy pinch of salt, but the sustained fall in infrastructure output – down more than 8% in a year – cannot be explained away so easily.

"The booming residential sector has been the engine of the wider construction industry's growth, and with demand still strong, it has plenty of road left to run.”

He said that even if house prices were close to peaking in the south east of England, sales were robust, and housebuilders were unlikely to suffer much in the short-term. He added that many construction firms have over two years' worth of orders on their books, and more than enough momentum to keep building.

"The construction industry is responding well to Britain's urgent need for more homes, but its growth must become more broadly based if it is to ride out any bumps on the road ahead,” he said.