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Construction output drops

Latest figures from the ONS show construction output has fallen once again.

Continuing a period of decline, the latest three-month on three-month series shows a drop of 0.8% in February, while the month-on-year figures show the biggest drop since March 2013 at three percent. This is reinforced by the 1.6% contraction in the month-on-month series.

The drop in output has been predominantly driven by the decline in repair and maintenance work, which has fallen by 2.6% in February 2018, with the month-on-month figures driven by a 9.4% decrease in infrastructure new work.

Respondents to the survey highlighted the problems created by adverse weather in early spring, with many attributing the drop in output to snowed in sites. The more volatile monthly series also reflects this, and its hopeful the spring thaw will boost production.

The latest figures follow two consecutive periods of month-on-month growth in the final months of 2017, when construction output reached a record high. However, the first two months of 2018 show output has begun to contract. 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 the month-on-month decrease in February 2018, construction output remains 24.2% above this level.

Looking at the areas driving the change, we can see the contraction is being pushed by a fall in all new work, with repair and maintenance also falling in February 2018.

Compared with January 2018, construction output has a fallen by £206M in February 2018, with the main contribution coming from a decrease in the value of infrastructure new work, which decreased by £152M in February 2018, falling from its third-highest level on record in the previous month.

Housing remains a positive contributor to output, pushed by government policy, with private housing new work increasing by £42M in February 2018. Similarly, public housing new work also grew following a decline in the previous month, increasing marginally by £9M.

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, commented: “Only so much of February’s slowdown can be explained away by the icy weather.

“Despite the modest upward revision to January’s figures, the message from the first two months of the year is clear – activity is slowing and the brief burst of momentum seen at the end of 2017 is now all but forgotten.

“The bright spots are getting fewer and further between. Housebuilders continue to shine as low interest rates and a chronic shortage of homes keep demand burning bright. Infrastructure too offers some hope, with London’s three flagship projects – the Thames Tideway Tunnel, Heathrow Q6 and Crossrail – together committing to more than £1.7bn of capital expenditure in 2018-19.

“But these strong points are increasingly looking like outliers, as commercial property demand cools and developers concentrate on completing existing projects rather than commissioning new ones.

“Though the economic backdrop remains benign – with low interest rates, readily available finance and a resurgent Pound bringing down the cost of imported construction materials – the construction industry’s magic ingredient, confidence, remains scarce.

“While order books remain strong outside London, softening demand and investor caution in the southeast mean that, for now, the industry as a whole remains caught in an awkward limbo.”

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