Mixed view of UK output

The first year-on-year fall in UK construction output since the second quarter of 2013 has been reported by the Office for National Statistics (ONS), although the Construction Products Association has challenged these figures saying that they contradict recent data.

The ONS said that in the first quarter of this year, output – the amount charged by construction companies to customers for value of work produced during the reporting period, excluding VAT and payments to sub-contractors – was estimated to have decreased by 1.1% compared with the fourth quarter of 2014.

Between the first quarter of 2015 and the same period in 2014, output was estimated to have decreased by 0.3% – the first year-on-year fall since the April to June period in 2013.

The ONS reported that downward pressure on the quarter had come from all new work, which fell by 1.7% – the largest quarter-on-quarter fall since the first quarter of 2013, when it fell by 2.0%.

It said that looking closely at the three months that make up the first quarter, most of this decrease could be attributed to the large fall in January. Total housing was down 3.4%, public other new work down 6.6% and private commercial work down 3.0% on the quarter.

All repair and maintenance decreased by 0.2% in the first quarter compared with the fourth quarter of 2014. All work types except public housing repair and maintenance reported falls, said the ONS.

Following falls in January and February 2015, output in the construction industry was estimated to have increased by 3.9% in March 2015 compared with February. On the year, output in the construction industry increased by 1.6% in March 2015 compared with March 2014.

Contradicted

While it noted that the ONS figures for the fourth quarter of 2014 and first quarter of 2015 suggested that the construction industry had technically entered recession, the UK’s Construction Products Association pointed out that the official data contradicted a growing body of recent evidence from itself and other industry sources.

It said several independent organisations, including Experian and Markit/CIPS, had reported growth in construction activity. It added that these findings had been reinforced by the Bank of England in its latest Inflation Report which highlighted concerns with the comparative figures.

The Construction Products Association originally wrote to the ONS to raise this issue following the release, in April, of the original fourth quarter estimate. It met the ONS in early May, and it said the two bodies were currently working together to address the matter.

The association’s latest Construction Trade Survey showed that companies across the construction industry had reported an eighth consecutive quarter of growth in the first quarter of 2015.

It said large contractors, SMEs, civil engineers and product manufacturers all enjoyed growth in output in the first quarter, and further expansion is expected throughout 2015.

Dr Noble Francis, economics director at the Construction Products Association, said, “Activity rose in the first quarter of 2015 compared to a year earlier according to 50% of contractors, on balance. Furthermore, increases in orders and enquiries indicate that the construction industry’s longest expansionary streak in six years is set to continue over the next 12 months.

“Increased activity was led by the private housing sector, in which 54% of firms, on balance, reported a rise in output. Increased output was also reported in private commercial, the largest construction sector, where 23% of firms, on balance, reported rising volumes of offices and retail work.”

He said, “This momentum is set to continue, as it was in the private housing and commercial sectors that contractors registered growth in order books in the first quarter”

He added that specialist contractors and SMEs had also reported a noticeable upturn in new enquiries in the quarter.

“Increased activity over the last two years has widely translated into higher tender prices, but contractors, SMEs and civil engineers also reported elevated costs on the labour and materials side, which in turn are squeezing profit margins.

“Only product manufacturers reported a significant benefit from the downward movements in fuel, energy and exchange rate costs.

Dr Francis said that a balance of 81% of contracting firms had experienced cost increases during the first quarter, and 63% had reported an increase in labour costs.

Encouraging

Stephen Ratcliffe, director of UKCG – the UK association for contractors and their supply chain partners – said, “The continued growth in construction reported by the latest survey is encouraging, and hopefully the clear general election result will help minimise any impact on work pipelines.

“Rising costs continue to reflect skills shortages, and the need to focus on recruiting and training new people into the industry.”

Richard Beresford, chief executive of the National Federation of Builders, said, “Companies are finding that prices agreed during leaner times have risen and are eroding profits, despite a rise in orders. With the industry entering a growth period, companies must take a longer term view when setting prices to ensure their survival.”

Dr Diana Montgomery, chief executive of the Construction Products Association, said, “Surveys from the CPA, wider industry and independent sources indicate that the UK construction recovery appears set to continue through 2015.”