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Construction output stalls

The latest construction output figures have been released by the Office of National Statistics, showing the industry is continuing its recent decline with the three-month on three-month series falling by 0.8% in February 2018.

Continued declines across a variety of sectors has led to the fall, which when compared with February 2017, is the biggest month-on-year fall since March 2013. Construction output also decreased in the more volatile month-on-month series, contracting by 1.6% in February 2018, stemming from a 9.4% decrease in infrastructure new work.

The ‘Beast from the East’ has been largely to blame for the decline, with snows preventing works on site to start or continue. However, it is difficult to quantify this impact and evidence is anecdotal.

The figures represent the fourth consecutive three-month on three-month decline in output.

With consecutive periods of month-on-month growth in the final two months of 2017, construction output reached a record high, however, 2018 has seen output subsequently contract, decreasing by 1.6% in the month-on-month series in February.

The industry was on a high in December 2017, with output peaking at a level 30.3% higher than the lowest point of the last five years, April 2013. Despite these latest rumblings, it must be borne in mind that construction output remains 24.2% above the 2013 level.

The latest figures attribute falls in new work, decreasing by 1.7%, and in repair and maintenance (decreasing by 1.5%) to the drop in output. Elsewhere, the value of private commercial new work also continued to decrease, falling for the eighth consecutive period in the three-month on three-month series, decreasing by £103M.

In contrast, private housing and infrastructure new work provided the only positive contributions to growth. Following strong growth throughout the majority of 2017 and the first month of 2018, private housing continued to grow in February 2018, increasing by £232M. In addition, the value of infrastructure work carried out between December 2017 to February 2018, compared with September to November 2017, also increased rising by £60M.

However, it is worth noting that while housing bolstered the figures with growth of 8.3%, it was more than offset by falls in public other new work, which contracted 11.0% and private commercial work, which decreased 5.4%.

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, commented: “After months of playing a bad hand well, the construction industry has lost its trump card.

“Housebuilding was more than just the one bright spot against the increasingly dark backdrop – it had taken on a totemic importance as a beacon of demand, resilience and hope.

“Without it, the sector looks dangerously exposed. Not for nothing is construction is now suffering the highest number of new insolvencies of any industry.

“The slump in output is the worst for six years, as the industry has been hit for six by a toxic combination of weak confidence, softening investor demand and rising input costs.

“Despite the low interest rate environment and abundance of finance available, developers are increasingly doubling down – concentrating on completing existing projects rather than commissioning new ones.

“Nevertheless it’s wrong to draw parallels with the painful slowdown seen at the start of the decade. For all the fall in demand, access to finance has never been better and order books remain strong outside London.

“Yet at this rate there is likely to be more pain to come, as there is little sign of an end to the limbo which is prompting investors in London and the southeast to sit on their hands.”

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