Construction activity drops as house-building slows

onsThe UK construction industry experienced a surprising decline in January 2015 according to revised figures from the Office of National Statistics (ONS), suggesting the sector’s growth could be moving out of its recent period of prolonged growth.

The new figures claim that output in January 2015 decreased by 2.6% compared with the final month of 2014.  The ONS stats also show a reduction of 3.1% compared to January 2014, marking the first year-on-year decrease since May 2013, when it fell by 2.8%.

The ONS says the recent weakness in construction output is due to an easing in the growth of housing output, which has been a major driving force behind the construction industry’s increased output since the second quarter of 2013. This has been largely caused by a reduction in mortgage approvals, which fell in January 2015 by over 19% from the same month a year earlier. As a result, housing output fell by 5% on the month in January 2015, moderating the annual rate of growth to 0.8%. This was felt particularly within public housing work, which decreased by 18.4% alone.

Reduced housing work is also a result of uncertainty surrounding the current economic picture going into the 2015 General Election, with reports from across the house-building sector of some firms halting new work until after May’s vote.

Reduced output in housing is not the only area of activity to suffer, with new work falling across the different broad categories of construction. Private commercial activity fell by 6.6%, while infrastructure was also down 2.7%.

While there was no reduction in output, there was also no growth in all repair and maintenance, although a reduction of 3.7% was noted between January 2015 and the same month in 2014.

The ONS’ latest findings have surprised many following positive reports from other industry measures of progress. January 2015 data collected by Markit and the Chartered Institute of Purchasing & Supply (CIPS) claimed that the industry grew in the opening month of 2015 from the low point of December 2014. This supposedly continued into the following report for February 2015, which claimed that recovery continued due to high levels of new orders.

Additionally, the latest State of Trade survey from the Construction Products Association (CPA) claimed that a large proportion of firms reported growth, albeit at lower levels than previously.

Due to the conflicting data from across several organisations associated with construction, optimism remains that the construction industry will remain in a state of growth throughout 2015.  

Chris Temple, engineering and construction leader at PwC, said:

“Despite these latest figures, we continue to expect the sector to show solid, healthy growth during 2015. As we approach the General Election, it is possible that we will see a further temporary slowdown in new orders. However, we don’t expect that this will be significant enough to counteract the upward trend of growth for the year and there is still strong confidence in the sector for 2015 and beyond.

“Our clients are highly optimistic for their growth prospects in 2015. Overall the picture for the construction sector is healthy.”

To read the ONS Statistical Bulletin, click here