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Construction output shrinks again

13 Oct 21 Despite many signs of a boom, construction output in Great Britain fell by 0.2% in August 2021.

Construction’s post-Covid recovery now looks to be over.

The output graphs show, unsurprisingly a near vertical decline with the arrival of Covid-19 virus in the UK in early 2020 and the subsequent national lockdown in spring.  Then from May 2020 to April 2021 there was an almost equally dramatic rise to return to near ‘normal’ levels of output.

Since April, however there has been a broadly steady decline in construction output as shortages and price rises suppress activity.

According to the Office for National Statistics’ latest bulletin, monthly construction output fell 0.2% (£30m) in volume terms in August 2021 in Great Britain to £14,243m, with the level of output now 1.5% below its pre-pandemic (February 2020) level. This follows a revision to the July numbers, previously put at a 1.6% decline on June, now adjusted to a 1.0% decline.

New work in August was flat while repair & maintenance fell 0.6% on July.

The level of construction output in August 2021 was 1.5% (£214m) below the February 2020 pre-pandemic level; new work was 3.7% (£348m) below the February 2020 level, while repair & maintenance work was 2.7% (£135m) above the February 2020 level.

The recovery to date, since the start of the pandemic, is mixed at a sector level, with infrastructure 45.4% (£852m) above and private commercial 26.3% (£656m) below their respective February 2020 levels in August 2021.

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For the three months to August 2021, construction output fell 1.2%, driven by a fall in repair & maintenance of 4.7%.

Since January 2021 prices for construction work have increased by 4.8%, on average. For new housing, the figure is 7.6%.

Despite declining output, contractors and building trades seem to be inundated with work, and materials producers are struggling (in many cases failing) to satisfy demand. It feels like the industry is booming but the statistics suggest we could technically soon be in recession.

The latest building materials and components release from the Department for Business, Energy and Industrial Strategy (BEIS) shows the monthly increase in building material costs in August 2021. Building materials for all work in August 2021 increased by 2.8% compared with July 2021 and 23.5% compared with August 2020. Specific construction materials with the greatest annual price increase in August 2021 compared with August 2020 were imported plywood (78.4%), fabricated structural steel (74.8%), and imported sawn or planed wood (74.0%).

Fraser Johns, finance director at construction contractor Beard, said: “With the reduction in output in August marking the first quarterly decline since July 2020, this is clearly not just a minor blip, and marks a real challenge for the construction industry to overcome. 

“A lot has been made of the supply chain issues and subsequent price rises and rightly so. Client confidence has certainly been impacted, with inflationary price pressures and supply shortages at the root of hesitancy to green light projects in the current environment. 

“After the sharp recovery in the past year, the industry needs to pull together to ensure this doesn’t become a long-term decline. To overcome it, contractors must be proactive, and regular collaboration with suppliers is fundamental to all projects.

“Multi-step procurement processes may become the norm, and this should help absorb the extended lead-in times for certain materials, and mitigate the risk of disruption to projects on the ground. Even with these precautions in place, it looks like the road to recovery will be a difficult one until the industry can solve the shortages issue.”

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