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Construction outlook remains rosy despite pre-election dip

15 Jun 15 Latest estimates from the Office for National Statistics show that construction output fell in April, compared to March, but new orders rose.

In April 2015, output in the construction industry decreased by 0.8% compared with March 2015, after increasing by 1.4% in March. Repair and maintenance decreased by 4.8% while all new work increased by 1.6%.

Compared with April 2014, construction industry output increased by 1.5%, according to the Office for National Statistics (ONS). This is the 23rd consecutive month of year-on-year growth, but it is the weakest year-on-year growth since November 2013.

Government statisticians have also adjusted their thinking about the fall in first quarter output. Last month they estimated that construction output in Q1 (January to March) 2015 fell 1.1%; now they say it was only a 0.2% fall. "This estimate has been revised based on the incorporation of late data, new seasonal adjustment parameters and the introduction of an interim solution for deflators," ONS said.

Output is defined 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.

New orders for the construction industry in Q1 (January to March) 2015 were estimated to have increased by 0.4% compared with quarter 4 (October to December) 2014 and by 8.0% compared with Q1 2014. There were increases in infrastructure (18.6%), private industrial (6.1%), new housing (1.2%) and all other work (0.1%) in Q1 2015.

Noble Francis, economics director at the Construction Products Association (CPA), commented: “Total construction output fell slightly in April but this was expected due to the uncertainty prior to the general election and its adverse impacts on consumer and business confidence.  Specifically, this influenced the kinds of construction work that can be temporarily delayed such as repairs, maintenance and improvements work, which fell 4.8% in April.  New construction work was affected to a lesser extent and, despite election uncertainty, private housing output was 4.5% higher than in March and 16.6% higher than one year earlier.

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“Overall, construction output was still 1.5% higher than one year earlier and, looking forward, the ONS new orders for construction point to further growth in activity over the next 12-18 months.

“New orders in Q1 were 8.0% higher than one year earlier with orders growth in the three key construction sectors; private housing, infrastructure and commercial.  Private housing new orders in Q1 were 1.5% higher than a year earlier, which points to further growth in house building but at a potentially slower rate due to skills and capacity constraints.  Infrastructure new orders in Q1 rose by 68.9% as work continues to feed through on major projects in the £466 billion National Infrastructure Plan.  New orders in the commercial sector in Q1 rose 14.9% due to a boost from offices and retail projects in Central London, Birmingham and Manchester.”

Dr Francis concluded:  “The CPA has previously highlighted issues regarding the ONS construction output data and we welcome the new construction output price deflators that the ONS has implemented in this data release.  As the ONS states, the new price deflators are an interim solution; the CPA will be working with the ONS to ensure that the construction output figures will be as robust as possible in the medium-term.”

Chris Temple, engineering and construction leader at PwC, also issued a comment on the data. He said: “Despite these latest figures, we continue to expect the sector to show solid, healthy growth during 2015. In the run-up to the general election we saw a temporary slowdown in new orders. However, we don’t expect that this will be significant enough to counteract the upward trend of growth for the year, and there is still strong confidence in the sector for 2015 and beyond.

“There is a lack of large infrastructure projects at the moment, accounting for the lull in that part of the sector. Furthermore, uncertainty about the economy in Europe has knock-on effects for business confidence and the short-term order books of construction firms. But political certainty in the UK after the general election and further details on the government’s plans for most subsectors including infrastructure should give the sector more confidence.

“Construction firms will look to the government to give further clarity on its plans in the forthcoming summer budget. We’re confident that this temporary slowdown won’t become a longer-term trend, and our clients are optimistic for their growth prospects in the rest of 2015. Overall the picture for the construction sector remains healthy."

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