Construction industry output 'better than first feared' but slump continues

Published by Jon Land for 24dash.com in Housing and also in Central Government

Output in the construction industry during the second quarter of 2012 may not have been as bad as first feared, according to revised figures published today, but the sector remains under considerable pressure.

Office for National Statistics (ONS) data shows that construction output dropped 3.9% during quarter two, less than the 5.2% slump it initially estimated. The sluggish performance of the construction industry was given as one of the main reasons for the UK economy shrinking 0.7% during the quarter.

According to today's figures, the volume of all new work fell by 4.6% and repair and maintenance fell by 2.7%, compared with the first quarter of 2012.

The year-on-year picture is even more depressing. The volume of all new work fell by 12.8% compared with the same quarter in 2011 while repair and maintenance fell by 2.8%.

According to the ONS, the movement of the late May 2012 bank holiday to June 2012, the additional bank holiday for the Queen's Diamond Jubilee and the unseasonal weather were likely contributing factors to the decline in the construction sector in the second quarter of 2012.

Commenting on the fgures, Simon Rubinsohn, RICS Chief Economist, said: “Detailed construction data released this morning for Q2 suggests that the initial estimate of output in the sector published as part of the GDP number a fortnight ago was too negative.

“However, the revision needs to be kept in perspective as it still shows a drop in output of 3.9% in the latest three month period. Construction output has now fallen in each of the last four quarters dragging the total volume of work down to its lowest point since the fourth quarter of 2009.

“The fact that construction output is now barely above the low point for the cycle demonstrates the on-going crisis in the sector. The squeeze in public spending is being compounded by a worsening picture in the private sector with business confidence fragile and development finance in short supply.

“Government measures to support the sector have so far delivered little and it remains to be seen whether the latest guarantee scheme for stalled projects will be anymore successful.

“Moreover, with the Bank of England also now recognising the likelihood that the economy will record no growth whatsoever this year, the case for heeding the advice of the IMF is growing stronger.

"A more modest pace of fiscal adjustment underpinned by a higher level of higher infrastructure spending has the potential to play a critical role in supporting growth in the economy in 2013."

Noble Francis, Construction Products Association Economics Director, said: "Looking at these figures, it is very hard to find anything positive to say in any part of construction.

"Across the 12 different construction indices, only one, non housing repair and maintenance, shows any growth at all and that at just 0.8% year on year and 0.1% quarter on quarter.

"However, what is most concerning is that private sector activity has also fallen sharply, implying that not just activity but also confidence is sadly lacking.

"This situation is rapidly becoming a crisis and at this rate I wouldn’t be surprised if manufacturers begin to shut down their operations and lay people off.

"There is an urgent need for government to address this situation by immediately embarking on a programme of repair and maintenance across all areas of the country, especially for housing and roads, clarifying the model by which private finance will be attracted to enable investment in major infrastructure projects and deciding government priorities for the amount of capital investment the country needs to stimulate growth.

"Without these measures recovery is unlikely to happen anytime soon."