2012 was the fourth worst on record for construction growth as output falls 8.4%

Posted by Brian Green

11 February 2013

From Brickonomics

So there we have it, the official Office for National Statistic figures show that Britain’s construction output fell by 8.4% last year.

But how can construction output have collapsed so far so fast and there not be howls of pain and frantic action by the Government to bolster one of the nation’s more vital industries?

It’s a puzzle made all the more baffling by the constant appearances on the telly of David Cameron and Nick Clegg in green boots, hi-viz jackets and hard hats.

Each time this happens apart from the debate about whether the trousers should be inside or outside the boots we hear phrases that sound awfully like “housing revolution”, “massive boost to infrastructure”, “unashamedly ambitious”.

With confidence boosters like those over the past year or two you might reasonably have expected a surge in construction activity.

As it happens with the 8.4% fall in annual output the construction industry has just experienced, according to the official figures, the fourth worst annual collapse since 1955. What is more impressive, in a bad way, is that this follows close behind the biggest recorded drop which was -13.5% in 2009.

Now admittedly much of the 2009 loss was clawed back in 2010 and to a lesser extent in 2011., but the construction industry is pretty much back to into the mire it was in during 2009 and looking to be heading deeper into decline. This comes across in the first graph.

With December’s output 15.1% below the level of the previous December, this is not an industry that looks to have a pretty short-term future.

There will be those who look at the quarter-on-quarter growth of 0.9% as a reason to be cheerful. This is probably a mistake if the forecasters take on the industry is well founded. They expect the industry to continue on a downward path this year.

And there are various technical reasons to be cautious over the growth figure posted in the final quarter, given the low base set in the quarter earlier.

However, those with a foot in the infrastructure market are naturally and quite rightly more content. They have seen rising quarterly output from a fairly solid base over the past year. Admittedly there was a nasty fall at the beginning of 2012, but the sector had been riding very high up to that point.

There will be not too many complaints from the private house builders either. Yes they see the case for building more homes. But while they may not be building as many as they think they should be, indeed construction output in the sector was 4.5% down over the year, they are working very profitably again.

Looking across the rest of the industry is rather like surveying a battlefield scene three years into World War 1 in the company of an Army chief. He might construct a case for success based around small victories, but at what cost?

Let’s just take the private commercial sector as an example. If the construction sector is to see growth this sector is vital.

Now you can point to the construction of spectacular towers in London, but overall the sector is a third smaller now than it was in 2008.

The second graph shows how each sector has fallen on the year, while the third sector shows how the industry grew between 2010 and 2012.

The obvious statement is that there is a lot more red than black. The second statement to make is that while some sectors have done well since 2010, last year there was very little growth to be found in any sector.

In March 2011 The Plan for Growth laid out by the Government said: “Construction will particularly benefit from: the radical changes to the planning system and publication of a rolling two year programme of projects where public sector funding has been agreed as well as a long-term forward view of infrastructure; reforms in the way government procures construction projects; and announcements on the regulatory requirements for zero carbon homes to apply from 2016.”

Given that statement and the constant emphasis the Government puts on construction as a driver of growth, there seems to me to be a choice of three reasonable conclusions we can draw from these latest data.

They are that the Government never really took construction that seriously, it doesn’t really understand construction, or it is just not very good.

I guess there is a fourth conclusion which is a blend of all the above three.

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