Optimism despite British output fall

Construction output in Great Britain is estimated to have fallen by nearly 4% in August compared to July, although there is better news about the country’s sales of construction products for the third quarter of 2014.

The latest statistical bulletin from the Office for National Statistics (ONS) showed that output in the GB construction industry dropped 3.9% in August compared to July, although a revision to the July figure, from 0% to 1.9%, had an impact on the month-on-month contraction in growth.

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

All new work decreased by 4.8%, with all types of work except public new housing reporting decreases. Infrastructure fell 6.5%; private commercial 5.6%; private housing 5.5%; private industrial 4.9%; and public other 2.4%. However, the fall in private housing provided the largest contribution to the overall slide in all new work and all work.

Repair and maintenance (R&M) also fell in August 2014, by 2.5%, with non-housing R&M declining by 2.6%.

ONS figures showed that output in the construction industry recorded a decrease of 0.3% compared with August 2013 – the first time that the year-on-year estimate has decreased since May 2013, when there was a fall of 1.7%.

Michael Dall, lead economist at construction intelligence specialist Barbour ABI, emphasised that the upward revision in July’s data was a key factor in the fall in August’s construction output rather than major declines over the month.

“While all sectors, other than public housing, fell in August,” he said, “the longer-term trends in the residential sector are still very encouraging. The other major sectors in construction, however, are not performing as well, with infrastructure and commercial continuing to record declines in growth.

“It is vital for the industry that all of these sectors grow to ensure pre-recession levels of activity are achieved sooner. Recent positive figures on new orders for commercial projects, and increasing levels of business investment in the economy, should hopefully have a positive impact in the coming months.”

He added, “For these reasons, while today’s declines are disappointing, the improving sentiment in the commercial sector in particular should start to boost output levels in the coming months.”

Construction products

There was also optimism in the UK’s Construction Products Association’s latest State of Trade Survey, which reported continued growth in UK sales of construction products in the third quarter of 2014.

In addition, manufacturers reported optimism going forward, and the survey highlighted expected domestic sales growth over the next quarter and the next year. Nevertheless, manufacturers suffered falls in export sales during the third quarter.

Dr Noble Francis, economics director at the Construction Products Association, said, “The latest results highlight the strength of the UK economy in the third quarter, with private sector construction and manufacturing both benefiting.

“A rise in third quarter sales was reported by 78% of heavy side firms and 50% of light side firms compared with the previous quarter, and all firms reported a rise in sales compared with 12 months ago.”

He said that as recovery in the construction industry had become more broad-based – across the private housing, commercial and infrastructure sectors – growth in construction products had become more sustainable and manufacturers were optimistic going forward.

Rising sales were expected in the coming years by 72% of heavy side product manufacturers and 90% of light side product manufacturers, he said.

“While product manufacturers reported growth in domestic sales, 27% of heavy side manufacturers suffered falls in export sales during the third quarter, and 40% of manufacturers reported that the key reason for this was the poor economic performance of the Eurozone, the key export destination for construction products.”

He added that a further 20% of manufacturers reported that the appreciation of Sterling had been a key factor in the fall in export sales during the third quarter.