Construction down slightly in October

Michael Lloyd

December 11, 2018

Construction output was down slightly in October, decreasing by 0.2% from September 2018, ONS figures for construction output showed.

This was driven by declines in infrastructure and public new housing, which fell by 3.7% and 8.1% respectively. The main factor offsetting these declines was a growth in private new housing, which grew by 2.4%.

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, said: “Britain’s housebuilders continue to roar but risk becoming paper tigers.

“Residential building has cemented its position as the construction industry’s most active sector. But its ability to defy Brexit headwinds is waning. New orders for residential developments shrank by a quarter between the first and third quarters of 2018.

“Britain’s housing shortage means underlying demand for new homes is strong, but even construction’s most totemic sector is subject to economic gravity.”

Perrotton added: “That downward pull dragged construction output as a whole into negative territory in October. While this is disappointing after builders’ decent run of activity over the summer, it’s symptomatic of an industry which has been starved of the oxygen of confidence.

“While labour shortages and rising material costs are all taking their toll on contractors’ margins, it’s the lack of orders and cut-throat competition for tenders that are forcing builders to bid low, and sometimes painfully low, for work.

“These are anxious times for an industry which relies more than any other on business confidence and solid investor sentiment.

“Both these vital ingredients have been choked off by months of Brexit deadlock, and barring some miracle in Westminster this week, the tortuous impasse is likely to continue.”

The decrease in October 2018 was driven by declines in infrastructure (down 3.7%), public new housing (down 8.1%) and total repair and maintenance (down 0.8%); the largest contributor offsetting these decreases was private new housing, which grew by 2.4%.

Despite the slight month-on-month decline, construction output in the three months up to October 2018 was 1.2% higher than the previous three-month period.

This growth was slower than in recent months, with a steady decline being seen from a 2018 high of 3.0% growth for the equivalent series in July 2018.

A historic high level of £9,221m in the new work chained volume measure seasonally adjusted series was reached in October 2018 which represents the highest value seen since monthly records began in January 2010.

New orders grew by 3.4% quarter-on quarter in July to September 2018, with a strong increase in public other new work of 31.9% helping offset a 5.3% decline in housing new orders; despite this increase, levels remain below those typically seen over the last five years of new orders data.

Mark Dyason, managing director of specialist development finance broker, Thistle Finance, said: “That new housing orders fell by more than 5% during July to September paints an ominous picture for 2019.

“Brexit won’t raze UK housing construction to the ground, as the sector is resilient, but it is generating significantly more caution among developers. Deal, no-deal or somewhere in between, what we can be pretty sure of is that 2019 is going to be a challenging year for the construction industry.

“Fewer developers are inclined to put their hands in their pockets, buy sites and hire contractors against such a backdrop of uncertainty. There’s a gargantuan question mark over whether they’ll be able to sell all of their units.

“A no-deal Brexit will mire the construction industry in even greater uncertainty and accentuate the already dire skills shortage as foreign workers steer clear in even greater numbers.

“There’s already a lot of foreign investment capital on ice and it’s likely to stay there whatever happens in 2019. The UK, right now, is simply too high risk for many investors.

“The irony is there has never been a better time to source development finance. The raft of specialist and challenger lenders in the market has driven down rates and resulted in no end of product innovation.”

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