Construction output falls sharply

Round-up of reaction to output figures:

Noble Francis, Economics Director at the Construction Products Association, said: “Although the coalition has consistently made pronouncements of boosting UK construction and the economy, there is little sign of this in reality. Public sector housing output in May was 23% lower than a year earlier and in the three months to May was also 23% lower than a year earlier.

“Public non-housing output, which primarily covers education and health construction, during May was 20% lower than a year earlier and in the three months to May was 22% lower than a year earlier.’

“Private commercial, the largest construction sector, continues to be the key bright area of construction. Commercial output in May was 2% higher than a year ago and in the first five months of the year was 1.3% higher than one year ago.

“However, this is not enough to offset the public sector cuts and, overall, in the first five months of the year, construction output was 5.4% lower than a year earlier so prospects for the year as a whole are bleak.

“If government is serious about recovery in UK construction and the economy, it clearly needs to focus on getting a replacement for PFI sorted out immediately, getting work on the ground now by focusing on repair and maintenance and ensuring that the Green Deal becomes a success by giving householders greater incentives to invest in energy-saving improvements.’

Simon Rubinsohn, RICS Chief Economist, said:

“Construction output rose a little in May but the underlying picture is still pretty flat with little sign that government rhetoric on the role of the sector in driving economic recovery is having any impact.

“We remain sceptical that institutional investors will provide the requisite funding to deliver the much talked of infrastructure programme without additional support from the authorities.

“Like many others in the sector, we are eagerly awaiting a further announcement from the government to address some of the key obstacles to private financing of construction projects.”

Steve McGuckin, Turner & Townsend managing director of the construction, said:

“What began as a dip has become more of a dive. What’s not clear yet is whether the industry has reached terminal velocity.

“Output is significantly down on this time last year, and last week’s PMI survey showed construction activity falling at the fastest rate for two and half years.

“But while confidence is still weak, month-on-month output did rise slightly in May. That said, the improvement on April’s alarming figures is hardly an achievement, and the quarterly trend is still down.

“There have been some signs of life in the private sector, and many still hope that it will ride to the rescue of a construction industry that has been hit hard by the decline in public spending. But these figures clearly show that it hasn’t happened yet. Infrastructure figures also continue to disappoint, so it is not yet the white knight the industry is hoping for.

“The pain isn’t being spread equally over the regions either - with South East England proving more resilient than everywhere else.

“Competition for work is intense and some consultants and contractors are making “suicide bids” - offering to work at below cost price just to create cash-flow, intending to leverage a profit on the job.

“Demand is still there, if sporadic and patchy. 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.”

Simon Rawlinson, Head of Strategic Research & Insight at EC Harris, said:

“The ONS figures released today offer no real surprise and confirm there is a sustained level of downward activity in the UK construction market. This is a worrying trend and repeats what we saw in Q1 when a reduced level of construction activity was blamed for the double-dip recession.

“Whilst there’s a slight improvement on April’s dismal figures the  stats from the past two months offer a strong indication that the Q2GDP figures will also be negative which will inevitably impact market confidence and investors willingness to focus on the UK creating fresh concerns for the Bank of England.

“It’s worth bearing in mind that these monthly statistics are not seasonally adjusted however so the Jubilee celebrations will undoubtedly have had an impact on the results.

 “One of the more worrying aspects of this month’s figures is the drop in activity in the infrastructure sector (which had previously been the star performer) where there has been a 20% decrease in volume of activity. Unfortunately this could have been caused by the bad weather and new policy decisions may now be under consideration on the back of this.

“This pattern of sharp decline in the volume of activity confirms what has been seen since December 2011 and whilst the data from previous years shows that infrastructure activity is typically more productive over the summer months, the government’s announcement next week on a new spending package cannot come quickly enough.

 “May’s figures also confirm a reduction in activity across the entire public sector with work orders down by over 20% overall which is consistent with the figures from previous months.

“The bulk of reduction in activity is in new assets reflecting the austerity in the public sector and lack of investment in privately funded utilities however asset maintenance and asset management is showing some resilience with figures down by just 2%”.