UK construction output drops

15 June 2012

Market commentators have reacted with disappointment to the latest data from the UK Office for National Statistics, which reported that construction output in April fell 13% compared to March, and was 8.5% lower year-on-year.

Construction Products Association economics director Noble Francis said the data reflected the government's implementation of public sector cuts.

"It was unfortunately unsurprising to see the sharp fall in construction output during April, given the extent of the public sector cuts. Public housing output in April fell 10% compared with March, and was 23% lower than a year earlier. Public non-housing, which covers education and health, was 13% down on March and 21% lower than a year earlier," he said.

Mr Francis added that the expectation that private sector construction would lead the recovery was "clearly not the case".

"Private sector work was clearly hindered by investor confidence, adversely affected by Eurozone uncertainty, and this was exacerbated by the poor weather in April. Output in private commercial, the largest construction sector, fell 10% during April and was 3% lower than a year earlier."

And he pointed out that, with further public sector cuts in the pipeline and little to suggest that a resolution to the Eurozone crisis is imminent, the trend for the next 12 to 18 months was also likely to be downward.

"The IMF has openly stated that government should do more to switch current spending to capital investment, which would help to drive the UK out of recession and support future growth," Mr Francis said.

Lack of finance

Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors (RICS), agreed that lack of finance to support development as well as a shortfall in demand remained the key factors weighing down the construction sector.

Mr Rubinsohn said, "New work, repair and maintenance and infrastructure all saw a drop in output in April and there is little sign that government policy on housing is having any impact on residential development. There has been little change in private housing output from the first quarter average or the same period last year and worryingly, it now looks likely that construction output will fall over the course of this year by rather more than the 3% we previously envisaged."

Julia Evans, chief executive of the National Federation of Builders, highlighted that it was not just housing and infrastructure that required attention.

"The year-on-year decline of 1.4% in repair and maintenance work in the three months to April is a concern. If the Green Deal, the government's flagship refurbishment programme, is to have any chance of success, it needs to be more attractive to consumers."

Call for VAT cut

Ms Evans called for a cut in VAT for all refurbishment from 20% to 5%. She said this would provide a £1.7 billion (€2 billion) boost to the economy and create around 30,000 jobs.

Meanwhile, Steve McGuckin, managing director of the construction consultancy Turner & Townsend, said demand in the UK's construction sector did exist, but he said competition for work was very intense.

"The major players are surviving, even if their margins have got steadily tighter. Niche players who excel at what they do are also bearing up well, but it's the middle ground - non-specialists whose services are commoditised - who are most at risk."

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