Construction output contracts for sixth consecutive period

crane-stockOutput in the UK construction sector has contracted for the sixth consecutive three-month period, falling by 1.4% in October, new figures have revealed.

Output in the Construction Industry statistics, released today by the Office for National Statistics (ONS), found that the three-month on three-month fall in output stemmed from falls in both repair and maintenance, and all new work, which fell by 3% and 0.6% respectively.

Construction output also contracted month-on-month in October 2017, decreasing 1.7%, in part due to a 1.5% fall in all new work.

On a positive note, new orders saw record growth in Quarter 3 (July to September) 2017, growing by 37.4% compared with the previous quarter. The record growth was driven predominantly by growth in the infrastructure sector, caused by the awarding of several high-value new orders relating to High Speed 2 (HS2).

Housing new orders also grew in Quarter 3 2017, increasing by 9.5%, recovering from a fall of 4.2% in the previous quarter.

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, said: “What began as a cooling is fast turning into a deep freeze. The loss of momentum has caused the construction sector to suffer its sharpest fall in quarterly output for more than five years – and this is eroding confidence too.

“The picture is especially bleak on the commercial property side. Months of false dawns on Brexit negotiations have whittled away confidence and left many businesses feeling punchdrunk.

“Against a backdrop of seemingly perpetual flux, businesses have understandably postponed big investment decisions, and we’re regularly seeing larger companies activate Brexit contingency plans and smaller firms mothball plans to scale up their premises.

“Even residential construction – so long the industry’s star performer – declined, revealing the scale of the task facing the government as it seeks to stimulate a wave of new housebuilding.

“Nevertheless there are some bright spots. On the front line we’re seeing consistent appetite among developers to convert office buildings into residential units under the extended and popular Permitted Development Rights.

“November’s increase in interest rates has yet to fully filter through and developers are still finding funds available. But finance is increasingly coming from the challenger, rather than high street, banks.

“This greater caution among the mainstream lenders is likely to set the tone for the industry as a whole as 2017 limps across the line.

“Last night’s Brexit deal may have unblocked the negotiations for now, but as long as confidence and clarity are lacking, the construction industry will continue to make halting progress at best.”

Mark Robinson, Scape Group chief executive, added: “After almost a year of slower growth in a climate of uncertainty the industry could now be turning a corner. Although output was down again in October, a record boost in new orders in Q3 means a strong pipeline of new work. Infrastructure and particularly HS2 activity has been the key driver of this increase, with potential benefits for the whole supply chain along the first phase of the route.

“Infrastructure investment provides long term certainty and stability for both the economy and the industry, but the government should work with the National Infrastructure Commission to ensure a joined-up approach on delivery. The pipeline of new projects must be undertaken in a sustainable way, avoiding peaks and troughs, to help to ensure capacity and alleviate pressures on the availability of skills.

“Now that the government has made some significant progress on Brexit negotiations and can move on to trade talks, the underlying economic uncertainty around Brexit will also begin to be addressed.”

Allan Callaghan
Allan Callaghan

North of the Border, Allan Callaghan, managing director at Cruden Building, said the recently published Planning Bill needs to provide a catalyst for the growing need for new homes.

He said: “Although construction output as a whole has fallen again this month, new orders for housing have grown and the demand for more housing across Scotland - both private and affordable homes, remains strong.

“Key to addressing this need will be investing in planning and other statutory approvals and having adequate resources from planning departments to deal with all applications, rather than stifling housing developments, leading to delays in construction companies starting on site.

“While the proposals unveiled in the Planning Bill have gone some way in moving in the right direction, the Bill simply doesn’t go far enough. Local authorities are hugely under resourced and if we don’t have the right processes in place to speed up the system, this will threaten the scope of future development right across the country and exacerbate the problem for young people who are struggling get on the property ladder.”

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