The latest ONS data shows that construction output increased 0.5% month-on-month in April. Output was, however, 3.3% lower compared to April 2017, and on a rolling three-month basis contracted by 3.4%, the largest fall since August 2012. Alongside this, new orders in Q1 fell 4.6% quarter-on-quarter and 6.6% in annual terms.
The only notable positive contribution to month-on-year growth came from the consistently strong private housing sector, which grew 8.5% in April 2018.
Rebecca Larkin, Senior Economist at the Construction Products Association, commented: “The 0.5% rise in April reflects an element of catch-up after the combination of Carillion’s liquidation and the bad weather in February and March. This seems like a false positive, however, as output remained weak compared to April last year, with the 3.3% fall equivalent to a £430 million reduction in construction work. Only the private housing and industrial sectors recorded growth, the former driven by the traditional spring selling season and the latter due to shorter lead times in factories and warehouses construction.
“The new orders data confirmed an underlying weakness at the start of the year unlikely to be due to the weather. Private housing, industrial and public non-housing new orders increased during Q1, but large falls in the infrastructure and commercial sectors, which account for almost one-third of total construction, are set to act as a drag on growth.”
However, it is important to keep these figures in perspective. Construction output peaked in December 2017, reaching a level that was 30.3% higher than the lowest point of the last five years, April 2013.
Despite three consecutive periods of month-on-month decline at the beginning of 2018, construction output did bounce back slightly in April 2018 and as a result construction remains 23.4% above its lowest point in April 2013.
Brian Berry, Chief Executive of the FMB, said, “The UK construction sector declined by 3.4% in the three months from February to April compared with the previous three months. This is the biggest fall since the latter stages of the recession in August 2012. The Beast from the East has certainly played its part as it forced many construction sites to close in March. Indeed, builders were reporting that it was too cold to lay bricks.
“Alongside the cold snap, the drop in construction output can also be attributed to rising costs for construction firms large and small. While wages are continuing to rise because of the acute skills crisis in our sector, firms are also feeling the pinch thanks to increased material prices.
“The depreciation of sterling following the EU referendum has meant bricks and insulation in particular have become more expensive. We expect material prices to continue to squeeze the construction industry with recent research by the Federation of Master Builders showing that 84 per cent of builders believe that they will continue to rise in the next six months.”
Berry concluded, “In the medium to longer term, with nine months until Brexit-Day, the future is uncertain for the UK construction sector. The government is still to confirm what the post-Brexit immigration system will look like. The construction sector is largely reliant on accessing EU workers with more than eight per cent of construction workers coming from the EU. It is therefore imperative that the sector knows how, and to what extent, it can recruit these workers post-Brexit.”
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